Western Digital (WDC) Q2 2025 Earnings Name Transcript

Western Digital (WDC -0.11%)
Q2 2025 Earnings Name
Jan 29, 2025, 4:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Members

Ready Remarks:

Operator

Good afternoon, and thanks for standing by. Welcome to Western Digital’s second quarter fiscal 2025 convention name. Presently, all members are in listen-only mode. Later, we’ll conduct a question-and-answer session.

[Operator instructions] As a reminder, this name is being recorded. Now, I’ll flip the decision over to Mr. Peter Andrew, vp, monetary planning and evaluation and investor relations. You could start, sir.

T. Peter Andrew — Vice President, Monetary Planning and Evaluation and Investor Relations

Thanks, and good afternoon, everybody. Becoming a member of me right this moment are David Goeckeler, chief government officer; and Wissam Jabre, chief monetary officer. Earlier than we start, let me remind everybody that right this moment’s dialogue incorporates forward-looking statements based mostly on administration’s present assumptions and expectations and, as such, does embrace dangers and uncertainties. These forward-looking statements embrace expectations for our product portfolio, our enterprise plans and efficiency, the separation of our Flash and HDD companies, ongoing market tendencies, and our future monetary outcomes.

We assume no obligation to replace these statements. Please discuss with our most up-to-date monetary report on Type 10-Okay and our different filings with the SEC for extra data on the dangers and uncertainties and that might trigger precise outcomes to vary materially from expectations. We will even make references to non-GAAP monetary measures right this moment. Reconciliations between the non-GAAP and comparable GAAP monetary measures are included within the press launch and different supplies which might be being posted within the Investor Relations part of our web site.

With that, I’ll now flip the decision over to David for introductory remarks.

David V. Goeckeler — Chief Govt Officer

Thanks, Peter. Good afternoon, everybody, and thanks for becoming a member of the decision to debate our second quarter fiscal yr 2025 efficiency. As a lot of you already know, with the completion of our separation later within the fiscal third quarter, I’ll grow to be the CEO of SanDisk. Because of this, this will likely be my final earnings name because the CEO of Western Digital.

Earlier than we dive into our second quarter outcomes, I wish to categorical my gratitude to our staff, clients, companions, and shareholders for his or her unwavering help all through my tenure. It has been an honor and a privilege to function the CEO of Western Digital, and I am immensely happy with what we have completed collectively to place each of our franchises for long-term success as stand-alone firms. Now, on to the outcomes. For the second fiscal quarter, Western Digital delivered income of $4.3 billion, non-GAAP gross margin of 35.9%, and non-GAAP earnings per share of $1.77.

Our dedication to enduring high quality and reliability pushed by our industry-leading innovation and diversified portfolio has enabled us to navigate the present market dynamics successfully. Whereas our HDD enterprise is experiencing strong development, significantly in high-capacity enterprise drives, our Flash section faces momentary headwinds as a result of pricing stress. Regardless of these challenges, we’re strategically well-positioned to capitalize on rising long-term storage demand from the AI knowledge cycle. Our HDD enterprise continues to carry out properly, propelled by our cutting-edge UltraSMR know-how.

This innovation permits us to push the boundaries of storage capability whereas sustaining the gold customary in reliability, high quality, and efficiency. The market has responded to our merchandise enthusiastically, driving our HDD revenues to a 12-quarter excessive with a document non-GAAP gross margin. We’re seeing growing adoption of our newer and higher-density drives, underscoring their skill to fulfill the evolving calls for of the storage market. I am happy to report that we’re within the remaining levels of our plan to separate our Flash and HDD companies and count on this to be accomplished on schedule.

In the course of the second fiscal quarter, we achieved two essential milestones: finishing our Type 10 submitting and finalizing key financing actions needed for the separation. Because of the meticulous planning and dedication of our groups, we’re able to function as unbiased entities. We invite you to affix us for our upcoming Investor Days on February 11 for SanDisk, on February 12 for Western Digital, the place our respective administration groups will share their strategic visions and reveal how every enterprise will drive shareholder worth as stand-alone entities. We anticipate that inside a couple of weeks after the Investor Days, Western Digital and SanDisk shares will start buying and selling as unbiased firms.

Turning to our enterprise items replace. In Flash, income was steady and consistent with expectations. Power in shopper and shopper resulted in better-than-expected bit shipments. Nevertheless, elevated pricing stress as a result of short-term oversupply from elevated utilization charges all through calendar yr ’24, coupled with clients working down stock, offset our bit cargo outcomes.

Cloud pricing was a constructive given continued AI-driven demand. Taken collectively, the outcome was a sequential decline in profitability. In fiscal yr 2024, shopper skilled development throughout income, items, and gross margins as the tip market benefited from a market restoration. Whereas income and items grew sequentially within the fiscal second quarter of ’25, gross margin declined as a result of pricing stress brought on by oversupply within the broader NAND market.

Regardless of this current softening, our exterior SSD drive shipments grew 50% sequentially. Our efforts in bolstering shopper desire, increasing partnerships, and launching our new creator collection at CES all present SanDisk with the appropriate basis to drive natural demand and margin enlargement. Now, turning to the Flash outlook. We consider that we’re at present in a mid-cycle pause.

Within the first — within the fiscal third quarter, we count on bit shipments to be down with stronger demand in knowledge middle and cell greater than offset by decrease bit shipments in PC OEM and shopper. Given the stronger-than-anticipated pricing headwinds on we’re proactively managing manufacturing ranges to reply to ongoing stock changes and evolving demand dynamics throughout our finish markets. By optimizing utilization and complete capability, with a key deal with delivering premium nodes, we intention to speed up stabilizing profitability on this dynamic market. On this new period of NAND, with decrease utilization and fewer intense capex setting relative to historic intervals, we’re seeing provide development appropriately responding to the present short-term headwinds affecting demand, and we count on to see a restoration as we transfer by way of calendar yr 2025.

Particularly, we count on shopper stock digestion to proceed into the primary half of calendar yr ’25 with normalization within the second half paving the way in which for a restoration that can allow the AI-driven PC ramp within the Home windows refresh cycle to achieve momentum. In knowledge middle, we mission cloud capex to proceed to develop in calendar yr ’25, and we proceed to make good progress qualifying our cloud merchandise with clients to seize our fair proportion of this market. Lastly, our shopper enterprise continues to carry out properly and whereas we count on seasonal weak spot in bit shipments, our premium manufacturers are offering ASP help to the general portfolio. We look ahead to discussing our views on the Flash enterprise on the SanDisk Investor Day on February 11.

The workforce and I’ll focus on why we consider that our markets are sturdy and rising, how speedy adoption of AI is creating new alternatives, what differentiates SanDisk, and the way the Flash {industry} is evolving. We’re very excited and consider you’ll be as properly. Our HDD enterprise delivered one other quarter of sturdy efficiency with knowledge middle income hitting an all-time excessive. This achievement underscores the power of our nearline storage options and the way well-positioned we’re to learn from ongoing market tailwinds.

The HDD enterprise additionally achieved document gross margins as clients proceed to extend the adoption of our increased capability drives, and we shared within the TCO profit offered by our progressive merchandise. We’re working in an setting the place demand for our product exceeds provide. To proactively handle this, we frequently work with our clients to get visibility into their future wants. In these tight circumstances, we would see volatility in shipments from quarter to quarter, however over the long term, we proceed to progress towards a state of predictable enterprise operations and sustainable worthwhile development.

Turning to the HDD outlook. Within the fiscal third quarter, we anticipate continued momentum in knowledge middle to drive sturdy demand throughout our nearline portfolio. As I discussed, our provide is now very tight, which helps us get higher visibility into long-term buyer demand and enabling higher planning for product deliveries within the coming quarters. Our clients more and more recognize the complexity of the HDD provide chain and the necessity for us to raised anticipate future demand.

As we proceed to broaden adoption of our UltraSMR portfolio at our largest clients and full the qualification and ramp of our latest drives, we anticipate profitability will proceed to enhance within the coming quarters. The HDD enterprise’ constructive structural transformation continues to achieve momentum. We stay targeted on operational excellence, environment friendly value construction, and a robust dedication to sustaining a balanced provide demand dynamic. We’re well-positioned to proceed delivering probably the most worthwhile and progressive product portfolio whereas establishing long-term {industry} management by way of our earnings potential.

In the course of the upcoming WD Investor Day on February 12, Irving and his workforce will present an in depth overview of HCD’s strategic street map. I wish to take a second to acknowledge the CFO transition announcement that we made two weeks in the past. After practically three years with us, Wissam will likely be transferring on to a different alternative. Wissam has been an impressive accomplice and chief at Western Digital, serving to us efficiently navigate the corporate by way of the ups and downs of our finish markets and construct a robust monetary profile at each HDD and Flash.

On behalf of the board and everybody at Western Digital, I wish to thank Wissam for his many contributions, together with seeing us by way of the separation, and want him one of the best of luck in his subsequent function. Let me now flip the decision over to Wissam, who will focus on our fiscal second quarter outcomes.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Thanks, David, and good afternoon, everybody. Within the fiscal second quarter, Western Digital delivered outcomes usually inside the steering ranges we gave in October within the face of a difficult pricing setting in Flash. Complete income for the quarter was $4.3 billion, up 5% sequentially and 41% yr over yr. Non-GAAP earnings per share was $1.77.

finish markets, Cloud represented 55% of complete income at $2.3 billion, up 6% sequentially and greater than doubling yr over yr. On a sequential foundation, the expansion was as a result of a rise in nearline HDD shipments, whereas Flash was down. On a year-over-year foundation, each HDD and Flash income grew. Shopper represented 27% of complete income at $1.2 billion, down 3% sequentially and up 4% yr over yr.

In comparison with final quarter, Flash income declined as bit cargo development was offset by pricing stress, whereas HDD income was flat. 12 months over yr, a rise in Flash income was primarily as a result of increased ASPs as bit shipments declined and was partially offset by decrease HDD income. Shopper represented 18% of income at $0.8 billion, up 14% sequentially and down 8% yr over yr. Sequentially, each Flash and HDD bit shipments grew and drove income development whereas pricing was a headwind.

12 months over yr, the lower was as a result of decrease shipments in Flash and HDD and pricing in Flash. Turning now to income by enterprise unit. Within the fiscal second quarter, Flash income was $1.9 billion, flat from final quarter and up 13% yr over yr. Sequentially, Flash ASPs decreased 13% on a like-for-like foundation and 10% on a blended foundation.

Bit shipments have been up 9% from the earlier quarter and down 2% in comparison with final yr. HDD income was $2.4 billion, up 9% sequentially and 76% yr over yr. The power of our nearline portfolio delivered exabyte development of seven% on a sequential foundation and 93% versus a yr in the past. Common value per unit elevated 5% sequentially to $172.

Nearline bit shipments have been at a document stage of 154 exabytes. Shifting to the remainder of the revenue assertion. Please observe, my feedback will likely be associated to non-GAAP outcomes until said in any other case. Gross margin for the fiscal second quarter was 35.9%, which was under our steering vary.

Sequentially, gross margin was down 2.6 share factors and up 20.4 share factors from a yr in the past. Flash gross margin was 32.5%, down 6.4 share factors sequentially as a result of pricing stress late within the quarter. Flash gross margin was up 24.6 share factors from a yr in the past. In HDD, sturdy demand for nearline drives resulted in gross margin enchancment of 0.5 share factors on a sequential foundation to 38.6% and 13.8 share factors from a yr in the past.

Working bills have been down sequentially and at $674 million, together with the synergy bills of $17 million. Decrease-than-expected working bills have been because of the synergy prices being decrease than expectations, whereas progress towards executing the SanDisk spend stays on monitor. As well as, variable compensation was decrease than expectations aligned with enterprise efficiency. Our outcomes reveal continued deal with value self-discipline whereas making progress towards the completion of the enterprise separation.

Working revenue was $864 million, down 2% sequentially, pushed by decrease gross margin, partially offset by decrease working bills. Working margin was 20.2%, down roughly 140 foundation factors sequentially however favorable in comparison with working losses posted final yr. Earnings tax expense was $105 million, and the efficient tax fee was 14%. Earnings per share was $1.77.

Working money circulation for the fiscal second quarter was $403 million, and free money circulation era was $335 million. Money capital expenditures, which embrace the acquisition of property, plant, and tools and exercise associated to Flash joint ventures on the money circulation assertion represented a money outflow of $68 million. Fiscal second-quarter stock was largely flat at $3.4 billion, with days of stock declining by 9 days to 112 days. The lower in HDD stock was offset by a rise in Flash stock.

Gross debt excellent was $7.4 billion on the finish of fiscal second quarter. Money and money equivalents have been $2.3 billion, and complete liquidity was $4.5 billion, together with undrawn revolver capability. In the course of the fiscal second quarter, we efficiently organized financing for the upcoming separation of our enterprise, which is a key milestone, and the progress towards the spin of SanDisk. I will now flip to the fiscal third quarter non-GAAP steering for Western Digital on a mixed foundation.

We anticipate total income to be within the vary of $3.75 billion to $3.95 billion. Gross margin is predicted to be between 31.5% and 33.5%. We count on working bills to extend barely to a spread of $700 million to $720 million, together with dis-synergy prices of $25 million to $40 million as we finalize the separation of our companies. Curiosity and different bills are anticipated to be roughly $100 million.

The tax fee is predicted to be between 14% and 16%. We count on EPS of $0.90 to $1.20 based mostly on roughly 358 million shares excellent. We’re wanting ahead to each of our Western Digital and SanDisk Investor Days in simply a few weeks to debate every enterprise in additional particular element. For now, I will present directional perspective on expectations from every enterprise within the fiscal third quarter.

For Flash, we count on income to say no sequentially within the mid-teens share and gross margin to lower as a result of decrease blended ASPs, increased value per bit, and underutilization costs of $20 million to $30 million as we handle our provide. Flash bits are anticipated to say no sequentially by mid-single-digit share. We additionally count on underutilization costs to proceed within the June quarter. For HDD, we count on income to lower sequentially by mid- to excessive single-digit share on decrease quantity, whereas gross margin is predicted to enhance by roughly 50 foundation factors as common value per unit continues to development increased.

We’re targeted on executing the ultimate levels of the spin and navigating present market dynamics whereas persevering with to ship strong monetary efficiency. I wish to shut by saying that it has been an amazing honor to accomplice with David and the incredible workforce at Western Digital. I am extraordinarily happy with the workforce’s accomplishments over the previous three years. There is no such thing as a doubt in my thoughts that each the HDD and Flash companies are sturdy and resilient, and each will proceed to offer industry-leading merchandise to {the marketplace} whereas unlocking vital shareholder worth for his or her respective shareholders.

With that, I will now flip the decision again over to David.

David V. Goeckeler — Chief Govt Officer

Thanks, Wissam. Our outcomes this quarter mirror our efforts to actively handle near-term cyclicality throughout our finish markets, realizing we’ve got a stable basis for future success that’s underscored by our industry-leading product street map. As we full the separation, I’m extraordinarily assured in our respective workforce’s skill to drive shareholder worth in each the HDD and Flash companies. Each firms will proceed to be pushed by the structural long-term tailwinds of the AI knowledge cycle and our skill to persistently supply our clients probably the most compelling and progressive storage options.

Earlier than we transfer to the Q&A session, I might like to spotlight that we are going to even be joined right this moment by Irving Tan, who will step into the function of CEO at Western Digital; and Luis Visoso, who will assume the place of CFO at SanDisk. Peter, let’s begin the Q&A.

Questions & Solutions:

Operator

Thanks. And girls and gents, we’ll now start the question-and-answer portion of right this moment’s name. [Operator instructions] One second, please, for the primary query. And right this moment’s first query comes from C.J.

Muse at Cantor Fitzgerald. Please go forward.

C.J. Muse — Analyst

Yeah, good afternoon. Thanks for taking the query. I assume first query on the HDD aspect. You talked a couple of sequential decline for the March quarter.

Curious, is {that a} perform of merely decrease shopper and shopper items or are you additionally seeing a pause in cloud? And inside that assemble, are you able to communicate a bit extra about your ready remarks associated to expectations for volatility Q on Q and HDD, making an attempt to raised perceive what’s actually driving that underlying change?

David V. Goeckeler — Chief Govt Officer

Hey, C.J. I’ll let Irving take that one.

Irving Tan — Govt Vice President, International Operations

Thanks, David. Hello, C.J. Look, I believe we have seen over 5 quarters, a really sturdy constructive development in income and the outlook for the enterprise stays wholesome. There will likely be quarter-on-quarter variations as we help clients with the timing of the deployments and in addition balancing the availability demand tightness that we’ve got.

So, that is actually what’s driving the slight decline in Q3.

C.J. Muse — Analyst

Nice. Very useful. And I assume, Dave, a query for you. Two components.

First, what offers you the arrogance that that is only a mid-cycle pause? After which inside the spin of the NAND asset, are there another type of technical regulatory issues that we must be desirous about which might be essential to get that executed within the subsequent 4 weeks? Thanks very a lot.

David V. Goeckeler — Chief Govt Officer

On the spin, you will see extra about that actually within the subsequent couple of days. We really feel actually good about that being on monitor. Wissam can undergo a few of the dates right here in a minute. Look, on the NAND, we’re nonetheless seeing bits have been up 9% this quarter, they will be down simply mid-single digits subsequent quarter.

We’re nonetheless seeing good quantity. We predict a few of the demand that we anticipated to materialize in PC and smartphone has moved to the appropriate a few quarters. I do not suppose that is any secret. The {industry} most likely overproduced slightly bit an excessive amount of.

We do not see a giant drop within the quantity. We see nonetheless good discussions with our clients. It is simply the market’s oversupplied proper now. So, we noticed some pricing headwinds, particularly as we transfer by way of the quarter, which we talked about.

Going ahead, we count on pricing headwinds subsequent quarter, however we count on them to be decrease than we noticed this quarter. So, we really feel like it is a pause, however we’re additionally going to take motion, as we talked up to now, this new period of NAND, we’ll be way more conscious of the demand alerts we see available in the market and regulate our manufacturing. So, we’ll go forward and do this and take slightly little bit of provide out of the market as we transfer by way of ’25, and we predict that can help pricing stabilization coming again quicker. So, I be ok with the place the general enterprise is.

We have had quite a few quarters of an up cycle now, actually fairly uncommon while you look going — we’ve got a chart right here that goes all the way in which again to ’07 and the sequential value adjustments available in the market, and it is very, very uncommon. It is not unprecedented to see this many quarters of up in a row with out some down. So, the factor right here now’s simply to stabilize the market, and we’ll do this by way of the availability aspect, after which we’ll get again to what we predict is a robust market as we transfer by way of ’25 and into ’26.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

And C.J., simply to observe on David’s feedback across the spend and the timing. The document date for the distribution will likely be February 12 and the date of the distribution will likely be on or about February 21. After which the shares of SanDisk could be buying and selling within the energetic markets shortly after.

C.J. Muse — Analyst

Thanks a lot.

Operator

Thanks. And our subsequent query comes from Aaron Rakers at Wells Fargo. Please go forward.

Aaron Rakers — Analyst

Yeah, thanks for taking the query. Good afternoon as properly. I assume desirous about the NAND gross margins, I am questioning when you can unpack if I take into consideration the $20 million to $30 million that you just talked about as being underutilization costs within the present quarter. If I look again the final time that you just took capability out, that appears like that is round 10% or 15% of the underutilization costs you took a yr or so in the past.

Is that how I take into consideration how a lot capability out you are taking? I believe the opposite means of asking it’s, I take a look at a few of your opponents and the information is that they are taking 10-or-so % of their bid provide out. Is {that a} honest evaluation of what you guys are doing?

David V. Goeckeler — Chief Govt Officer

Yeah. We’re not going to enter precisely how a lot we’re taking out. That is a dynamic resolution we make week over week, month after month as we take a look at the enterprise. I believe unpacking the gross margin is a vital dialogue as we go into subsequent quarter.

I believe one factor for all of you guys to acknowledge, we’ll see 1 / 4 of value will increase. We managed to that 15% value decline. We talked in regards to the new period of NAND that possibly be extra about 12% as we go ahead over the following a number of years. However we had an excellent begin to the yr in value downs and now we’ll see Q3, we’re really up low single digits.

So, that is a big effect on gross margin. You had underutilization costs on that, after which some ASP headwinds as properly. Like I mentioned, as we sit right here right this moment, we see the ASP headwinds to be moderating versus what we noticed this quarter. After which bits down mid-single digits.

So, that type of offers you unpacking slightly bit the gross margin quantity going ahead.

Aaron Rakers — Analyst

Yeah, that is very useful. And simply to type of construct on that’s there any strategy to body how we should always take into consideration the underutilization impression into the fiscal fourth quarter? And simply to be clear, is there any threat of stock costs taken based mostly on the present market dynamics? Thanks.

David V. Goeckeler — Chief Govt Officer

I believe you’ll be able to most likely take into consideration This fall, they’re going to come up simply — they’re going to come up slightly bit from the place we have been and what we count on in Q3. Perhaps give it some thought possibly 60-40 type of cut up or 40-60 type of cut up.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. And on the stock, Aaron, look, all of it is dependent upon what pricing does. However as of the tip of Q2, our stock is appropriately said.

Aaron Rakers — Analyst

OK. Thanks.

David V. Goeckeler — Chief Govt Officer

You are welcome.

Operator

Thanks. And our subsequent query right this moment comes from Wamsi Mohan with Financial institution of America. Please go forward.

Wamsi Mohan — Analyst

Sure, thanks a lot. Dave or Irving, are you able to discuss simply at a excessive stage the place we’re within the HDD cycle total? I believe, Dave, you mentioned in your ready remarks a couple of instances that demand is exceeding provide, but the calendar Q1 information is to be down sequentially barely. So, are you able to assist us unpack if that’s simply seasonality? Is there one thing past that? And the way ought to we take into consideration pricing as we take into consideration 2025 and possibly the utmost quantity of exabytes that you would be able to ship given that offer is so tight on the present time? And I’ve a fast follow-up.

David V. Goeckeler — Chief Govt Officer

I’ll let Irving discuss ’25. I’ve huge confidence on this enterprise and massive confidence in Irving driving it ahead and all the workforce. Sure, going into the following quarter, you are going to see some income down slightly bit on quantity. Look, it has been fairly a run.

I imply, it is — we have to handle the availability chain, all of the parts. We do have way more visibility to the place our clients are going. It is simply order circulation. We proceed — we’ll proceed to see margin enhancing going into subsequent quarter.

So, structurally, I believe the enterprise is simply in a incredible place. We’re getting extra visibility. We now have growing profitability, and we have a whole lot of tailwinds from AI, extra demand than provide. However let me let Irving discuss how he sees ’25 enjoying out.

Irving Tan — Govt Vice President, International Operations

Yeah. Thanks, David. As I discussed briefly, we see the outlook for ’25 nonetheless being comparatively strong going ahead. And as David talked about, there will likely be some slight variations quarter on quarter, however the outlook for the remainder of the yr is comparatively strong.

By way of pricing, as Wissam alluded to as properly, taking a look at pricing to stay steady to barely up for Q3. And by way of exabyte, it is actually a perform of combine. And as we look ahead to qualifying our new 32 terabyte drives, that provides us extra capability to offer into the market from an exabyte perspective as properly.

Wamsi Mohan — Analyst

OK. Nice. Thanks a lot.

David V. Goeckeler — Chief Govt Officer

Thanks, Wamsi.

Wamsi Mohan — Analyst

And as a follow-up, can I simply ask rapidly on the NAND aspect? I believe you used the phrase momentary weak spot. And I am simply questioning, as you concentrate on a few of the actions that you are taking from a provide standpoint, what sort of assumptions are you making round demand restoration, whether or not it’s on PC aspect or smartphone aspect, into possibly the second half of the yr? And is that the time-frame while you’re pondering that the market will get tight once more? Thanks.

David V. Goeckeler — Chief Govt Officer

Yeah. I imply, we predict as we transfer by way of ’25, we’ll see — by the point we get executed with ’25, we’ll see PCs items up, we’ll see smartphone items up. Knowledge middle continues to stay sturdy. So, we — on the demand aspect, we see that mid-teens demand for the calendar yr.

We see the market barely undersupplied to that. Fairly frankly, you did not ask the query, however we see a much bigger step up in demand in ’26, however let’s stick with ’25 for now. So, as I mentioned earlier, we nonetheless see good quantity within the enterprise. Discussions with clients are excellent.

We’re simply in a spot proper now the place a few of that demand we thought was going to come back within the PC and smartphone market round this time has been pushed out slightly bit. And so, we’ll make some changes in our provide to help pricing and we predict we’ll be good as we transfer all through ’25. We’re very optimistic on the place we’re at from after we — once more, we return and we take a look at total wafer spending on this market. We predict that the market is about up in a really sturdy place.

As I mentioned earlier, we have had an excellent run of value will increase, virtually unprecedented. If you return during the last decade, it is not stunning we might see some type of pause like this. And we’ll — I believe what’s completely different this time is we’ll regulate provide way more rapidly than we’ve got up to now to reply to this and speed up bringing the market again to extra of an equilibrium to an undersupplied place.

Wamsi Mohan — Analyst

Thanks a lot.

David V. Goeckeler — Chief Govt Officer

Thanks, Wamsi.

Operator

Thanks. And our subsequent query comes from Tim Arcuri with UBS. Please go forward.

Unknown speaker — — Analyst

Hey, guys. That is Aaryan on for Tim. It’s one factor while you and Seagate had extreme capability, it looks as if you actually cannot ship a lot if any greater than the 13.5 million drives your delivery and now passing above this 10-year development line. I might suppose that possibly there’s extra urgency from the purchasers on getting in orders for BTO.

So, any change in conduct? After which I’ve a follow-up after.

Irving Tan — Govt Vice President, International Operations

Yeah. We have not seen any change in conduct. As you are conscious, one of many issues we pivoted to is admittedly transferring to BTO, that is giving us much more visibility on a 52-week time horizon in order that we will higher plan with our clients and guarantee we’ve got the appropriate provide demand stability, and that is actually making certain that there is not a buildup of stock inside our buyer setting.

Unknown speaker — — Analyst

Thanks. After which on the — my follow-up on the NAND aspect. The NAND cycle simply bought began and we turned capability again on. Now, we’re going by way of one other correction on the buyer aspect.

And so, what would you do as soon as it is a stand-alone enterprise? Are you continue to going to hold all that market share? Or will you do extra like what you probably did within the HDD and handle to driving margins increased with much less relating to the share? Thanks.

David V. Goeckeler — Chief Govt Officer

Yeah, that is a query for our Investor Day on the eleventh, and we’ll discuss that in fairly a little bit of element. So, we’ll have lots to say about that right here in one other week and a half. However I believe the way in which we’re managing the enterprise now’s what you are going to see extra of going ahead. We have been very clear.

We put out a giant webcast on the brand new period of NAND about how we considered this enterprise, the way it’s modified within the 3D period, how we — our perception, and the way it must be managed. And I believe you are seeing that play out in actual time right here this quarter. And we’ll discuss that in additional element right here in a few weeks, and we’ll hope to see you in New York.

Unknown speaker — — Analyst

Superior. Thanks, guys.

David V. Goeckeler — Chief Govt Officer

Thanks. Admire it.

Operator

Thanks. [Operator instructions] Immediately’s subsequent query comes from Joe Moore of Morgan Stanley. Please go forward.

Joe Moore — Analyst

Nice. Thanks. I ponder when you might give us an replace on enterprise solid-state drives. I do know there’s been some choppiness in that section.

Are you continue to monitoring to your targets? And simply how are you doing there?

David V. Goeckeler — Chief Govt Officer

Hey, Joe. Yeah, we’re doing high quality there. We’re nonetheless monitoring to focus on. There may be some — I believe I mentioned throughout the quarter, we’re in for a few uneven quarters and I believe that is what we’re seeing.

That was a spotlight final quarter, actually from supporting pricing. We nonetheless be ok with our 15% plus, 15% to twenty% of combine as we’re sitting right here on the midway level by way of the yr. That is one other factor we’ll have lots to speak about at our Investor Day about type of what our street map seems to be like in enterprise SSD, however we’re nonetheless seeing sturdy demand there, Joe.

Joe Moore — Analyst

Nice. That is useful. Thanks. After which simply extra of a procedural query, however is there a time the place you will give steering for the 2 companies individually? Does that occur on the Analyst Day? Is it the spin in Type-10? Or simply how ought to I take into consideration that?

David V. Goeckeler — Chief Govt Officer

Yeah. We’ll speak extra about that on the Investor Day. We strive — I believe in Wissam’s ready remarks, he gave you sufficient steering there that you would be able to type of get an excellent thought of what the numbers are going to be, however we’ll reinforce that right here in one other 10 days.

Joe Moore — Analyst

OK. Thanks very a lot.

David V. Goeckeler — Chief Govt Officer

Thanks, Joe.

Operator

Thanks. And our subsequent query right this moment comes from Thomas O’Malley of Barclays. Please go forward.

Tom O’Malley — Analyst

Hey, thanks for taking my query. I simply needed to ask about capex. You are beginning a brand new calendar yr right here, and I am certain you will give us a broader replace on the Analyst Day. However given the discount in utilization and only a broader pause you are seeing, type of a mid-cycle pause within the enterprise, any replace on the way you’re desirous about spend on the Flash aspect? You talked about know-how transitions.

It sounds just like the SSD enterprise goes by way of a few lumpy quarters. Simply with all of these elements in, any extra coloration on how you concentrate on spending on the NAND aspect of the enterprise, significantly? Thanks.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. Hey, Tom, thanks for the query. So, look, there is no change within the strategy on capex. As we have mentioned all alongside, we wish to keep — stay disciplined in how we deploy the money and capital for the corporate.

Clearly, most likely the following factor over time will likely be simply, sooner or later, ramping the following node. However from an total perspective, there is no actual change on the pondering. I am fairly certain as we get to Investor Day, David and Luis could have way more so as to add on that as properly.

Tom O’Malley — Analyst

Yeah. Useful. After which pivoting to the HDD aspect. So, Seagate has given us some framework for the place they suppose their capability type of hit the wall on the HDD aspect, that is about 160 exabytes on a quarterly foundation.

You guys have type of gotten, I consider, on this final quarter to round 175 exabytes. Might you assist us perceive the place you guys begin operating right into a wall by way of capability? You have talked about some capability drawdown probably into the March quarter. However is there an identical framework that you just guys go by? Simply traditionally, the market has been slightly bit completely different than you guys being forward by way of the variety of exabyte shipped. So, any type of assist with the place you run right into a wall otherwise you proceed to develop there? Thanks.

Irving Tan — Govt Vice President, International Operations

Yeah. I do not suppose we’ll make any touch upon that. We’re fairly targeted on making certain we get the appropriate — we’ve got the appropriate provide demand stability and persevering with to be very prudent and disciplined in our capital expenditure.

Operator

Thanks. And our subsequent query right this moment comes from Karl Ackerman with BNP Paribas. Please go forward.

Karl Ackerman — Analyst

Sure. Thanks, gents. The final quarter, you launched the 32 terabyte SMR and 26 terabytes CMR with 11 discs. And I believe you famous you’d full {qualifications} in coming quarters.

I believe you’ve gotten that starting to ship at two hyperscalers now and maybe a 3rd one is within the technique of qualifying. So, I hoped you would focus on the order charges and visibility you see for these high-capacity drives as we take into consideration the sustainability and development of the HDD enterprise all through ’25. Thanks.

Irving Tan — Govt Vice President, International Operations

Hello. That is Irving. Thanks for the query. As talked about, we see the outlook for nearline persevering with to be wholesome.

As you’ve got alluded to, we count on the qualification for our new 32 terabyte SMR and 24 terabyte CMR to be accomplished someday in Q1 of the calendar yr. And I might say our clients are very enthusiastic about these drives, and we’ll present you extra visibility as we transfer ahead.

Karl Ackerman — Analyst

Thanks.

Operator

Thanks. And our subsequent query right this moment comes from Asiya Service provider with Citigroup. Please go forward.

Asiya Service provider — Analyst

Yeah, thanks very a lot. One query we get — I perceive the seasonality right here in March, and I perceive a few quarter the place there may be some variability, however any visibility into the stock ranges right here? After which simply on the hyperscalers, the way you guys are desirous about it? After which simply the availability chain on the HDD aspect, how are you desirous about the availability chain having the ability to meet the rising demand that you just guys are desirous about? Thanks.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. Thanks for the query. Look, after we discuss Q3 and what we guided may be very a lot — would not essentially point out decrease visibility or increased visibility. We predict we’ve got good visibility of what the stock is doing in our clients and the place the orders search for the following few quarters.

It is only a matter of timing of orders. And so, that is how — type of most likely one of the simplest ways to consider it. There is not very way more than that occurring not less than as we see from the place our clients inventories and orders seem like. By way of the availability chain, look, we’re working in a tighter provide chain on the onerous drive aspect.

We have mentioned that for the final couple of quarters. I believe we’ve got a terrific operations workforce that continues to have the ability to handle to ship to our clients as many merchandise as we will, and we’ll proceed to function as such within the subsequent few quarters. The truth that we moved to construct to orders with a lot of our clients offers us nice visibility or larger visibility than earlier than. And so, that additionally helps within the skill to proceed to ship the merchandise when required, when wanted.

Asiya Service provider — Analyst

Thanks.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

You are welcome.

Operator

Thanks. And our subsequent query comes from Vijay Rakesh with Mizuho. Please go forward.

Vijay Rakesh — Analyst

Yeah. Hello. Simply to observe up on the onerous disk drive aspect. Good numbers there.

However I believe as you progress this capability to create terabyte disks, I believe you are going as much as 11 disks. Do you see the necessity to type of push on the areal density aspect, too, as you see this transferring on HAMR aspect? Any ideas there? And I’ve a follow-up.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. Thanks for the query. Sure, we’re all the time targeted on enhancing areal density and efficiency. That is one thing we additionally get a serious carry from our UltraSMR functionality, and we predict that is an enormous aggressive benefit.

And we — clearly, our UltraSMR functionality will likely be extensible whilst we transition from our ePMR portfolio ultimately to our HAMR portfolio as properly.

Vijay Rakesh — Analyst

Bought it. After which on the NAND aspect, I do know you talked about giving extra capex steering at Analyst Day. Any ideas on the way you see the pricing margins type of tendencies for the yr? I do know you most likely have not talked about that previously, however —

David V. Goeckeler — Chief Govt Officer

Yeah. We do not speak an excessive amount of about that. I imply, I believe what — I believe I mentioned I see — going into subsequent quarter, I see — we see some ASP headwinds, however these moderating in depth from what we noticed this quarter. So, that is — it is a good signal as we sit right here right this moment.

And this is the reason we’re taking the availability actions we’re taking is to help pricing to get — we’re seeing some headwinds right here. We nonetheless have some — we nonetheless have a whole lot of confidence in demand as we transfer all year long, however we’ll make some changes right here to be sure that we deliver the market again into stability and a barely undersupplied spot as rapidly as potential to help pricing and margins within the enterprise.

Vijay Rakesh — Analyst

All proper. Thanks.

David V. Goeckeler — Chief Govt Officer

Thanks.

Operator

Thanks. And our subsequent query right this moment comes from Ananda Baruah with Loop Capital. Please go forward.

Ananda Baruah — Analyst

Yeah. Thanks, guys for taking the query. I will simply maintain it to 1. However Dave, I might like to get your — or any of your view on type of Flash — type of the function of Flash in hyperscale storage, the world that is been type of overwhelmingly represented by [Inaudible], there is a fairly public — it is a reasonably large Flash vendor, programs vendor that made it fairly public announcement in December about having a hyperscale win, and that is been a giant matter of dialog over the previous couple of months right here in each companies.

So, I might simply like to get your view on dynamics in that market. That is it for me. Thanks.

David V. Goeckeler — Chief Govt Officer

All proper. Yeah. My place has been fairly steady right here for fairly a while. That is use case pushed.

There’s all the time going to be use instances that use Flash. There’s all the time going to be use instances that use onerous drives. That blend has been comparatively steady. Perhaps it adjustments slightly bit just because Flash is rising quicker.

And also you are likely to see newer use instances come for Flash. I believe AI mannequin coaching is an effective one. That is a really Flash-driven sort use case. Nevertheless, when you begin producing all that knowledge, it is going to return on to onerous drives.

And the onerous drives have a really strong street map. As Irving about, very sturdy deal with areal density, proceed to drive value downs there, super improvements. And so, the arbitrage on the fee there may be going to remain the identical for fairly a while. However Flash goes to develop slightly quicker.

Onerous drives are going to develop. As they are saying, two issues might be true. They’re each true. And we really feel very sturdy about each of them.

So far as onerous drives within the cloud, I will observe that we simply shipped practically 161 exabytes in 1 / 4 into the cloud. So, it is a very massive at-scale enterprise. There’s all the time going to be use instances the place — once more, there’s all the time going to be use instances within the hyperscale that come up that may be happy with Flash. We’re very massive followers of that, proper? We’re very bullish on Flash as properly.

It does not imply it is on the expense of onerous drives. It is simply — that is how we see the market. We have referred to as that means for years, and we proceed to see that dynamic enjoying out. It is good for each companies.

I imply, look, let’s take it up a stage. We have got all this AI demand. There’s been a whole lot of dialog about AI within the final a number of days, as a matter of truth, some main improvements in accelerating the adoption of AI. It is an space the place there’s an unbelievable quantity of funding going, which ends up in superb improvements.

And as this market continues to speed up, that is going to be nice for each of those companies. It’ll speed up the creation of information. It will increase the worth of information to coach extra fashions, which will increase the quantity of information that will get saved. So, that is going to drive onerous drives dramatically.

As inference strikes to the Edge — keep in mind, we speak lots about enterprise SSDs. It is an important, very massive market. However NAND is predominantly an Edge enterprise. And as inference strikes to the Edge, it will drive an unlimited quantity of NAND consumption there as properly, each in unit development, capability per unit.

So, we’re very, very bullish on the storage market. And we have seen some nice dynamics right here during the last yr, and we predict that is going to proceed for fairly a while.

Ananda Baruah — Analyst

Thanks for all of that. Actually recognize it.

David V. Goeckeler — Chief Govt Officer

Thanks.

Operator

Thanks. And our remaining query right this moment is from Mark Miller at The Benchmark Firm. Please go forward.

Mark Miller — Analyst

Thanks for the query. I simply was questioning, are you seeing across-the-board provide reductions by your NAND opponents? And if that’s the case, any estimate on how a lot they’re lowering?

David V. Goeckeler — Chief Govt Officer

I do not — I believe we do not actually discuss what our opponents are doing. We’ll deal with speaking about our enterprise. I imply, we have been very clear about what we have been doing. We see this little pause available in the market.

We have been very, very open about how we’ll handle the enterprise going ahead on this new period of NAND. We have talked lots about that, nearly how costly the nodal transitions are and the way we’ve got to be very disciplined on capex, and we’ve got to be very disciplined about how we provide the market given simply how massive the market is now and the way a lot productiveness comes out of those nodal transitions. So, that is the way in which we’re managing the enterprise. We proceed to see good demand all through this yr.

We proceed to see a balanced undersupplied market, and we’ll take some actions simply to be sure that’s the case throughout our portfolio based mostly on what we’re seeing.

Mark Miller — Analyst

Thanks.

David V. Goeckeler — Chief Govt Officer

Thanks.

Operator

Thanks. And this concludes the question-and-answer session. I might like to show it again over to the administration workforce for closing remarks.

David V. Goeckeler — Chief Govt Officer

Thanks, all people, for becoming a member of us. We look ahead to seeing all of you in New York right here in a few weeks and speaking about these two companies we really feel excellent about. We have executed the separation during the last yr. And we’re proper right here on the doorstep of launching these as two separate firms, and we look ahead to speaking to all of you about that in nice element right here in simply one other 10, 11 days.

So, we look ahead to seeing you then. Thanks for becoming a member of us right this moment.

Operator

[Operator signoff]

Period: 0 minutes

Name members:

T. Peter Andrew — Vice President, Monetary Planning and Evaluation and Investor Relations

David V. Goeckeler — Chief Govt Officer

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

David Goeckeler — Chief Govt Officer

C.J. Muse — Analyst

Irving Tan — Govt Vice President, International Operations

Wissam Jabre — Govt Vice President, Chief Monetary Officer

Aaron Rakers — Analyst

Wamsi Mohan — Analyst

Unknown speaker — — Analyst

Joe Moore — Analyst

Tom O’Malley — Analyst

Karl Ackerman — Analyst

Asiya Service provider — Analyst

Vijay Rakesh — Analyst

Ananda Baruah — Analyst

Mark Miller — Analyst

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