Bob Blair – VP, IR John Coyne – President and CEO Timothy Leyden – EVP and CFO

Richard Kugele – Needham & Company, LLC Ananda Baruah -Brean Murray, Carret & Co., LLC Craig [ph] – Merrill Lynch Aaron Rakers – Stifel, Nicolaus & Co., Inc. Kevin Hunt – Hapoalim Securities USA, Inc. Keith Bachman – Bank of Montreal Sherri Scribner – Deutsche Bank Steve Fox – CLSA Limited Mark Moskowitz – JP Morgan Chase & Co Kay Huberty – Morgan Stanley

Good afternoon and thank you for standing by. Welcome to Western Digital's Fourth Quarter Financial Results for Fiscal Year 2010. Presently all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder this call is being recorded. Now I'll turn the call over to Mr. Bob Blair. You may begin.

Thank you. I want to mention as we begin, that we will be making forward-looking statements in our comments and in response to your questions concerning industry inventory, pricing and demand, our position in the industry, our growth and profitability, the impact of our entry into and our position in the traditional enterprise market, the impact of our acquisition of Hoya's magnetic media operations, the sufficiency of our cash to meet operating needs, our investments in technology and capacity, our expected capital expenditures, depreciation and amortization and tax rate for fiscal 2011, our share repurchase plans, our long-term business model and our financial results, expectations for the September quarter including revenue, gross margin, expenses, tax rate, share count and earnings per share. These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially including those listed in our 10-Q filed with the SEC on April 30, 2010. We undertake no obligation to update our forward-looking statements to reflect new information or events and you should not assume later in the quarter that the comments we make today are still valid. I also want to note that copies of today's remarks from today's call will be available on the investor section of Western Digital's website immediately following the conclusion of this call. I will now turn the call over President and Chief Executive Officer John Coyne.

Good afternoon and thank you for joining us today. Fiscal 2010 was another highly profitable growth year for WD. Ever increasing demand for cost effective and high capacity storage continues to provide opportunity for substantial growth and consistent value creation over an extended term when addressed with an effective business model. With a relentless focus on customer needs, quality, low cost and high asset efficiency, WD has become solidly and increasingly profitable throughout the last decade. Over the last five years, WD has profitably grown revenue at a compound annual rate of 22%. In this same period, we have grown operating income at a compound rate of 50% per annum. For fiscal year 2010, we grew revenue 32% to $9.8 billion. We increased operating income by 194% year-on-year. The hard drive demand growth story continues to be driven by the proliferation of multiple devices and applications that are resulting in the generation, utilization and storage either locally or in the cloud of massive amounts of digital content on low cost high capacity hard drives. We believe that the industry's growth trajectory will continue over the foreseeable future creating significant additional opportunity for WD with its well-honed business model and expanding product set to continue to generate growth on a sustained and profitable basis. This growth opportunity has been created in large part by our ability to continually drive down average cost per gigabyte leading to attractive price points but have driven mass market adoption of devices incorporating hard drives. At the same time, we have gradually expanded gross margins while growing revenues by continuously increasing efficiencies and reducing costs. Our assessment in late April of a June quarter time in the range of 157 million to 162 million proved overly optimistic. Actual demand for hard drives in the quarter was about 156 million units, down 4% sequentially but up 16% from the year ago period. The major factors leading to the lower time were weakness in Europe, destocking by OEM customers and a shift in OEM ordering patterns to take advantage of lower cost sea versus air freight. In hindsight, this expanded the March quarter at the expense of the June quarter. Given the change in the demand during the June quarter, WD and others in the industry responded quickly to adjusted bill times, resulting in quarter ending inventory modestly increased but at manageable levels. Chip inventory increased from seven to 10 days, while component distribution inventories increased slightly but remained at the midpoint of the normal four to six-week range including in transit. Taking these market dynamics into account, we were pleased to deliver one of the strongest fiscal fourth quarter performances in company history. While market dynamics in the June quarter will tamper short-term growth rates and affect price levels in the September quarter, we believe that the second half of the calendar year and calendar year 2011 will continue to present substantial growth opportunities and rewards for hard drive industry participants with effective business models and compelling product offerings. WD continues to generate substantial free cash flow while continuing to reinvest significantly in our business, both in expanding and enhancing our product offerings and in improving our operations. Over the course of fiscal 2010, we continue to lead the industry's fastest-growing segment, 2.5-inch drives, deploying industry-leading aerial density products at the 640 gigabyte, 750 gigabytes and 1 terabyte capacity points. We made our entry into the traditional enterprise market with the introduction of our first 2.5-inch SAS hard drives for server applications, part of our multi-year commitment to serve this important and heretofore, unserved market for WD. We brought to market our first client-oriented solid-state drive to complement our existing portfolio of high reliability embedded SSDs and we are in development of our first solid-state drive for high-end enterprise applications. In our Branded Products business, we broadened our portfolio of WD storage devices with the introduction of My Book Studio RX, hard drives for Apple users and the My Book AV DVR Expander hard drives, which allow users to keep more of their favorite movies and TV shows. We extended our family of WD Media Players with the WD TV Live Plus featuring added services such as Netflix, YouTube, Flickr, Pandora, Live 365 as well as Media Flight that enable consumers to stream their favorite shows and personal content directly to their TVs. It is also the first network Media Player compatible with Windows 7. On the manufacturing side, we improved the security of supply of glass substrates, and enhanced our long-term cost structure with the acquisition of Hoya's media operations. Before I pass the call to Tim Leyden, I want to acknowledge our loyal customers, who are the primary reason for WD's continued significant growth as a leading supplier of storage devices. We will continue to work passionately and diligently to earn their ongoing business. I also want to thank the WD team and our supply partners for their exceptional contribution to WD's revenue, profitability and cash generation in the fiscal year just ended. Tim?

Thank you, John. In the June quarter, demand was weaker and more back-end loaded than we had anticipated. We believe that the weaker and less linear demand resulted from a number of things. OEM restocking during Q3 reduced market size in Q4. In European credit crisis led to some purchasing pause by retailers for a number of weeks due to the euro-exchange fluctuation, and there was relative weakness in the consumer space. The combination of these factors and the pressure exerted by some competitors increasing their production in a smaller market contributed to more downward pressure on selling prices than we had expected. Given these conditions, we acted to optimize our financial results, but at the same time, defending our market position. We are pleased that despite these challenging fiscal Q4 conditions, we achieved growth margins of 22.5% for the quarter, a 15-year high for WD in the fiscal Q4, and at the high-end of our long-term gross margin model range. For our full fiscal year 2010, total revenue was $9.8 billion. Hard drive shipments were 194 million units and ASP was $50. Revenue from non-hard drive sales totaled approximately $154 million. The corresponding numbers for fiscal 2009 were total revenue of $7.5 billion, shipments of 146 million units and ASP of $51. Revenue from non-hard drive sales totaled approximately $62 million. Compared with 2009, gross margin in fiscal 2010 was 24.4% versus 17.9%. Operating income was $1.525 billion versus $519 million. Net income was $1.382 billion versus $417 million, and earnings per share was $5.93 versus $2.08. Net income in fiscal 2010 included $27 million of expense related to litigation settlement. Net income in fiscal 2009 included a $14 million in-process R&D charge related to the acquisition of Silicon Systems, $112 million of restructuring charges offset by related tax benefits of $4 million, and an $18 million gain on the sale of the company's substrate manufacturing facility in Sarawak, Malaysia. Turning to the 2010 fourth quarter results. Total revenue was $2.4 billion, up 24% from the prior year, but down 10% sequentially. Hard drive shipments totaled 49.7 million units, up 24% from the prior year period but down 3% sequentially. Revenue from sales of WD TV and Media Players and solid-state drives totaled approximately $27 million, up 20% from the prior year and down 41% versus the March quarter. Average hard drive selling price was approximately $47 per unit, down $1 from the year-ago quarter and down $4 from the March quarter. We shipped 19.9 million mobile drives in the June quarter, compared to 16.9 million in the year-ago quarter and 19.8 million in the March quarter, reflecting unit consumer demand in the U.S. and India, offset by commercial and emerging market growth. During the June quarter, we shipped 5.3 million drives into the DVR market, compared to 3.7 million in the year-ago quarter and 4.6 million in the March quarter. The strength in this market in the June quarter was in line with historical-seasonal patterns. Revenue from sales of our Branded Products including WD TV was $400 million, up 26% from $318 million in the year-ago quarter, and down 14% sequentially from $467 million in the March quarter reflecting the typical seasonality of the retail market. In addition to normal seasonality, the decline in the value of the euro impacted selling in Europe for a number of weeks. Enterprise SATA demand continues to grow in fiscal Q4, particularly at the high-capacity points. Our product lineup has us well-positioned in this segment. Our SAS products are making progress towards our multi-year plan to gain a representative share of the traditional enterprise market. Moving on to our sales channels and geographic results. Revenue by channel was 54% OEM, 29% distribution and 17% Branded Products in the June quarter, knowing the same percentage split as in the year-ago quarter and 49%, 33% and 18% in the March quarter. No single customer comprised more than 10% of total revenue. Relative to the geographic split and on our revenue, the Asian market continued to be strong by 54% of revenue in the June quarter as compared to 54% in the year-ago quarter and 52% in the March quarter. The Americas and European regions contributed 25% and 21%, respectively, in the June quarter compared to 24% and 22% in the year-ago quarter and 24% in the March quarter. Our gross margins for the quarter was 22.5%, up from 19.2% in the year-ago quarter and down from 25.2% in the March quarter. Gross margin was impacted on a sequential basis by pricing, channel mix, segment mix and volume reductions. Total R&D and SG&A spending was $242 million or 10.2% of revenue. This includes the $27 million of litigation settlements and compares with $184 million or 9.5% revenue in the year-ago quarter and $224 million or 8.5% of revenue in the March quarter. Operating income was $293 million or 12.3% of revenue. This compares with $209 million or 10.8% of revenue in the year-ago quarter and $441 million or 16.7% of revenue in the March quarter. Net interest and other nonoperating expenses were approximately $1 million. Tax expense for the June quarter was $27 million or 9.2% of pretax income. Our net income totaled to $265 million or $1.13 per share. This compares with $196 million or $0.86 per share, and $400 million or $1.71 per share in the year-ago and March quarters, respectively. Turning to the balance sheet. We generated $1.9 billion in cash flow from operations during fiscal 2010, including $362 million during our fourth quarter. Our cash conversion cycles for the fourth quarter was a positive of two days. This consisted of 48 days of receivables outstanding, 28 days of inventory or 13 turns and 74 days of payables. Our inventory turns were reduced by approximately one turn as the result of including the higher inventory that we acquired on June 30th. Excluding acquisitions, capital expenditures for the June quarter were $185 million. Our non-cash charges for depreciation and amortization expense totaled $134 million. Capital additions for fiscal 2010 totaled $737 million lower than our April projection of $750 million as we scale back in line with lower demand. Depreciation and amortization expense for fiscal '10 totaled $510 million. During the fourth quarter, we acquired the magnetic media sputtering operations of Hoya Corporation for $233 million in cash. We expect that the Hoya will be mildly accretive to WD's long-term growth margin model by the end of the calendar year. But prior to that, it will have about a 50 basis points negative impact on the gross margin as we get it tuned to WD's production standards. We made $82 million of debt repayment installments during fiscal 2010, including $25 million during our fourth quarter. We reduced our debt balance to $400 million at the end of fiscal 2010. We exited fiscal Q4 with cash and cash equivalents of $2.7 billion, a decrease of $92 million from the March quarter. We continue to hold the cash balance in excess of our anticipated operating needs. With the strategy to maintain operational flexibility, increase our investments in advanced technology, expand our product breathe through the pursuit of internal and external opportunities, and to protect against macroeconomic weakness. The balance remaining in our stock repurchase authorization is $466 million. Now, I will discuss our expectations for capital, depreciation and tax for fiscal 2011. We expect our capital expenditures for fiscal 2011 to be between 78% of revenue with an additional $200 million related to our 6-inch to 8-inch wafer conversion and some expenditure to optimize the output from our recently acquired Hoya production facility. We expect total CapEx in Q1 to come in around $275 million. We expect depreciation and amortization to be about $650 million for the fiscal year. We expect our book effective tax rate to range between 6% and 9% and our cash tax rate to be between 1% and 2%. Now, we'll move on to our long-term business model. We believe annual growth in the unit shipments of the hard drive market will continue in the 10% to 15% range into the foreseeable future. It should generate industry-revenue growth of between 5% and 7.5%. Given this industry-growth rate, we expect to operate within our long-term growth margin model range of 18% to 23%, with some longer term off of momentum from an increasing percentage on local media as well as advancing our presence in the traditional enterprise market. Our OpEx model target has continued in the 9% to 10% range and our resulting operating income will range from 8% to 14%. Tax expense is estimated to be in the range of 6% to 9% income before taxes. These parameters would yield net income in the 7% to 12.5% range. Now, turning to our guidance for fiscal Q1. Historically, September-quarter demand has been up by 10 to 13% when compared to June volumes. However, a number of factors are leading us to forecast lower growth this quarter. We believe that some of July's natural OEM demands was fulfilled at the end of June, and that OEMs are less concerned about shortages than they were a few months ago. U.S. retails sales statistics also suggests that there has been some emerging consumer demand weakness. Additionally, we believe that OEMs have planned for a regular back-to-school season and that components to satisfy those demand expectations are either in their manufacturing pipelines or in transit at this point in time. As we entered the quarter, demand has started out slowly as some customers deplete on-hand customer inventory and await confirmation of the extent of back-to-school demand. These factors will dampen the typical season of uplift to an expected range of between 2% and 6%, which translates into a TAM range of between 160 to 165 million units. Taking these factors into account, we anticipate that pricing will be competitive and further dependent on emerging demand level dynamics as-back-to-school season gets underway. Should demand turn out to be stronger than anticipated, we expect to be able to respond to the upside. Accordingly, we expect current quarter revenue for WD to be in a range from $2.350 billion to $2.450 billion. R&D and SG&A are expected to total approximately $235 million. Our net interest expense is projected to be about $1 million. We expect our tax rate to be about 7.5%. We anticipate our share count to be approximately $236 million. We estimated earnings per share between $0.80 and $0.90 for the September quarter. Bob?

Ready for questions, operator.

(Operator Instructions) Our first question comes from Rich Kugele with Needham. Richard Kugele – Needham & Company, LLC: Yes, thank you. Good afternoon. A couple of questions, I guess first just a follow-up on your comments on pricing. Were they centered primarily around the consumer retail side of your business, which you look at it at least 20%? Or is it an OEM comment as well, right. So with that pricing that was set at the end June heading into this quarter and there really is little that can change it.

Yes, I mean pricing, there was worst than what we would have expected in pretty much all segments of our business during the course of the quarter. Of course, it was really in the areas where in the segments were consumers are strongest, which is retail and the channel. And then as a result of that, it takes a little while longer, but OEM do think to reset their prices as a result of the prices that they are seeing coming out of those channels. So, we're expecting that for Q1 that in what would normally have been an expectation of either a flat to [inaudible] that price declines will be worsened than historically. And even though there will be a little bit of mix up because of the consumer demand, awaiting of consumer demand as we get headed to back-to-school season, we don't think that that will be sufficient to offset the pricing decline. Richard Kugele – Needham & Company, LLC: So, then in terms of your CapEx commentary even for this coming quarter, have you throttled that back as well or is there already stuff that's in process and you can't stop it. Or can you just talk about, or at least directionally expect your capacity utilization to be in light of that CapEx?

Yes. But I mean we have CapEx on order and in the pipeline that is with this market site numbers, it is in excess of what we would waste. Consequently, we're going to have to work on it in order to push it out. Richard Kugele – Needham & Company, LLC: Okay. Then just lastly, despite even this type of guidance, you should be generating a significant amount of cash flow yet the stocks and the group as a whole trades at probably record-trough levels. What is the Board's view and the management view of exercising the risk of that buyback or even potentially going private?

I'd have to ask the board about going private, but we are obviously evaluating what's the best way to use our cash at all times. We believe that we have an inclination towards utilizing cash operationally and strategically because we believe that that's the option that offers the best return to the shareholders in the long term. Richard Kugele – Needham & Company, LLC: Okay, thank you very much.

And now to Ananda Baruah with Brean Murray. Ananda Baruah –Brean Murray, Carret & Co., LLC: Yes. Thanks, guys, for taking the question. I guess just going back to pricing as you guys envision kind of September-quarter demand hopefully planning out and then if we can get some semblance of the typical seasonality as well from your perspective into December. I guess what does it take to get pricing declines back to where you think they should be, sort of normalized pricing declines and not necessarily stability, but where you guys think it should be as we move through the fall?

Well, I think, the requirements for stabilizing pricing and continuing to work on efficiency and cost and thereby expanding margin that typically is a cyclical process. Once demand exceeds the baseline build plans of the drive industry, we'll begin to see that dynamics kick in. What we – [inaudible] it's quite possible that as we see the actual back-to-school sell through happening, that we will see the normal, seasonal uptick in the late-August, early-September timeframe and I believe if we see a strong sell through and back-to-school, that will inject confidence into the planning and demand profiles of our customers as we head into the holiday season-demand period. So, it's quite possible that we'll see that in the very late FQ1 and through FQ2. Ananda Baruah –Brean Murray, Carret & Co., LLC: Thanks, that's helpful. And I guess just as we think about gross margin dynamics for the September quarter, you mentioned I think it was four things. I think price, and then channel mix, segment mix, and then number four is volume as impacting the June quarter gross margins. Is that the same order that we should think about them or I guess order of magnitude? How should we think about what's going to impact gross margins in this December quarter.

Yes, I think it's pretty much in the same old or I would imagine because the segment mix would be a bit better because the consumer and retail and channel as back-to-school season comes. And so pricing channel segments and I don't think volumes because we are in an up market, we're going to defend our market share. Ananda Baruah –Brean Murray, Carret & Co., LLC: Okay, great. And then just one last one related for me, if I could. Is there anything on the cost side in terms of component cost take outs as we move to the September quarter that you guys can do kind of to catch up to some of the price declines that have taken place, like good service, a bit of a support to the gross margin?

I think very consistently part of our business model is to consistently and continuously reduce cost through efficiency improvements and by design, and that process is alive and well and we're focused on continuing to accomplish that as we move forward. I think if you look at the long-term cadence of the industry, we've consistently expanded margins as we move through the last decade, and we've done that. Half of that has been driven by growth of our business and the other half has been driven by our vertical integration of our business and efficiency and cost efforts. And so we started out at the beginning of the decade '01, '02 averaged 12% gross margin; '03, '04 was 16; '05, '06 was 18; '07 and '08 was 19; '09 and '10 was 21. So, we've seen a continuous expansion in margins at the same time that we've seen north of 20% compound annual revenue growth throughout that period. Ananda Baruah –Brean Murray, Carret & Co., LLC: All right, thanks.

And we would expect to continue to exercise the same model on the same underlying market demand that as we move forward.

I got Craig [ph] with Merrill Lynch. Craig – Merrill Lynch: Hi. Thanks. Good afternoon. Guys, can you maybe talk a little bit around the long-term gross margin target and how Hoya is going to impact that? And then my second question would be from the European retailer perspective that they took a pause there, so to speak, did that come back toward the end of the quarter and then into the record so far ?

Okay, so the European situation, the pause, that has helped for a number of weeks was when they – currency was fluctuating mostly in a downward direction as far as they were concerned. So, consequently, they were unsure about what to do as they grappled towards having to buy goods that were denominated in dollars and had to operate on the market to the end-user at a fixed price point. So, they were concerned, they had uncertainty so they have hesitated to refill our pipeline. And when the currency fluctuations settle downed a bit, they did come back into the market and started refilling their pipeline, but at a muted [ph] level versus what would have been normal, otherwise. And the second question is the Hoya gross margins? As we've indicated it to be mildly accretive is the terms we used. And that is based upon the fact that we've fallen a little behind our model of it internal versus external and in getting back to our model, which the Hoya acquisition will help us to do, it will add something in the region of about 0.5% just going through [inaudible] to gross margins in the longer term. Craig – Merrill Lynch: All right, thank you.

Aaron Rakers with Stifel, Nicolaus Aaron Rakers – Stifel, Nicolaus & Co., Inc.: Yes, I guess, the first question would be on the OpEx. I just want to be clear, $235 million, how much of that is reflective of the Hoya acquisition in the quarter when you benchmark that against it looks like 215 kind of million adjusted for that litigation expense last quarter.

Yes, there isn't really anything to speak out of Hoya expenditure in the OpEx. Aaron Rakers – Stifel, Nicolaus & Co., Inc.: Okay. So, I guess that begs the question of why $235 million? Last quarter you guided $220 million and you came in at $250 million adjusted. So what's the sequential increase driven by?

Very little compensation accruals. So consequently, if you can imagine with the expectations that we had for the first half of the year, we didn't reach those expectations. And those in amount that went back in there and managed to bring the number down to $250 million. So at the level of expectations that we are now setting, we've put in that estimate for OpEx in order to cover that, and also, we continue to invest in R&D. Aaron Rakers – Stifel, Nicolaus & Co., Inc.: Okay. So I guess just looking at the other pieces of the P&L just to get to the number, it's a benchmark – it looks like you're somewhere around 19% gross margin, inclusive of the 50 basis point headwind from Hoya, is that correct?

Yes. Aaron Rakers – Stifel, Nicolaus & Co., Inc.: Okay. And then final question would be for me is when you look at the TAM assumptions you guys are making, I think there's a lot of, I think, questions out there about the back-to-school build dynamics as it relates to more product shipping, ocean versus air. How much of your TAM assumptions have you adjusted for that dynamic, and is it you guys have good visibility into that trend?

Well, I think, the build has largely been taking place already or is in the very final stages of build with the majority already in transit. So the real thing that we're watching is the actual sell-through during back-to-school season. And I think the general input from our OEM base is pretty cautious right now. And they too are waiting to see what the consumer demand profile is going to look like through late July and August. So we're looking for that to tell us whether the rest of the quarter will be one of muted expectations for the future leading to consumption of on-hand component stock, or whether the view of the future by our customers will be more positive, which would lead them to immediately begin to replenish stocks of components. Aaron Rakers – Stifel, Nicolaus & Co., Inc.: And your visibility to that won't really happen, until what, late August?

Mid to late August. Aaron Rakers – Stifel, Nicolaus & Co., Inc.: Fair enough. Thanks, guys.

Kevin Hunt with Hapoalim Securities. Kevin Hunt – Hapoalim Securities USA, Inc.: Yes, thanks. Actually I have a couple of questions. Just a follow-up on the Hoya question, when did you say that, that would be turned from a drag to a benefit?

Beginning in the next calendar year. So it would be a drag until the end of this calendar year. Kevin Hunt – Hapoalim Securities USA, Inc.: And that was gradually build towards the east of the half-point that is –?

Yes. Kevin Hunt – Hapoalim Securities USA, Inc.: And my second question is really just digging in more to this demand outlook The year outlook was lower than Seagate's, which was much lower than Intel's and Dell, and other people who have given an outlook recently. So I'm just trying to tie out – you're implying somewhere of the 15% annual year-year unit kind of increase versus those other kind of larger guys saying 20%. And they're all talking about better corporate builds offsetting this weaker back-to-school so – why I guess – why do you think it's something differently to you than they're saying outside the rest of them Wall Street? I guess that's the question number one.

Well, I think when you peel apart Intel's numbers and guidance, you'll see that the majority of their growth was in their server business in terms of the growth rates as they gave the detail on the segments, their growth for the PC-related market was 2%, and we believe the bulk of that was ASP growth rather than unit growth. And we think part of the forward positive guidance relates to the fact that as they did a product transition to Capella, there was no buildup of the inventory at the component level in the OEM customers. In fact there was a brief shortage as they transition from old to new. So I think there's a different stocking dynamic in Intel versus the drive industry. There is however, and we are seeing it, an uplift in commercial. But the combination of the macroeconomic conditions in Europe allied to the strong proportion of our business in distribution and retail and in OEM consumer is – the commercial boost is not making up completely in terms of overall growth rate for the softness we currently see in consumer and what we saw through last quarter was some flushing of inventory by the OEMs, and we are building in to our forward look for this quarter an expectation that they will release another little bit of on-hand component inventory. However, all of that being said – so we're planning on the conservative basis from a capacity-utilization perspective and a CapEx perceptive. However, as our history indicates, we're ever mindful of close attention to the actual numbers and the ability to sprint talk to address opportunity as they present themselves. Kevin Hunt – Hapoalim Securities USA, Inc.: Okay. I guess the other part of the same question you'd kind of alluded to about rising on both and so forth and that sort of the new dynamic. I mean is that going to let them change going forward the sort of seasonality that you see? And so would that also change the holiday build and pull that pour earlier into, say, the third quarter?

Well, it's not so much drives on boats as systems on boats. And I think there's a little bit of a standoff going on there. But the OEMs are waiting to see the back-to-school before they decide fully what to do for the holiday. And that may force some of the holiday to the air freighted. And that seems to be a preference for them to look at a more assured build plan for the holiday, based on knowledge of the back-to-school sell-troughs than shaving the little bit of incremental margin and pre-committing themselves by building a product early and putting them on boats. Kevin Hunt – Hapoalim Securities USA, Inc.: Okay. Thank you.

Keith Bachman, Bank of Montreal. Keith Bachman – Bank of Montreal: Hi. Thanks very much. I have two questions as well. What do you think the industry capacity is for both the September and the December quarters as you look at the TAM, particularly that you just mentioned 160 to 165, how do you think that matches up against the capacity that will be in place during the course of this quarter and next?

I think the capacity is a little ahead of that number. The real issue is what each company decides to do relative to utilization of capacity. Keith Bachman – Bank of Montreal: Okay. Which one player in particular, I guess? The second question and is – I just want to see if I can get your take on the status of the collective and broader inventory. You've talked about some of the different piece parts, but if you try to characterize not only what's in the channel but also what will end up on the balance sheet of the vendors and even guesses on OEMs. I'm just trying to understand what the balance is of inventory today. Seagate referred to a specific number when they talked about 5 million incremental drives, but I want to get your take on the balance of the inventory.

Yes. We think there's about 2.5 weeks of total inventory between drives that belong to the drive makers, that's the OEM jilt [ph] and the finished goods inventory that's in the drive makers, and – plus, the inventory that's in the distribution and retail channels at the drive level. So we when you add all of that together about 2.5 weeks, which is an increase of about 10% over the position ending start last quarter – ending the March quarter. Keith Bachman – Bank of Montreal: John, sorry. What do you think inventory is the disti [ph]?

Disti [ph] is about five weeks for us and for the industry. When you include both the inventory on hand at the distributors, components inventory on hand at the distributors and in transit that they already own. Keith Bachman – Bank of Montreal: Great. Okay. Thanks very much.

Sherri Scribner with Deutsche Bank. Sherri Scribner – Deutsche Bank: Hi. Thank you. You made a comment that you thought that the OEMs did some re-stocking in the March quarter, and I was curious how much re-stocking do you we think we saw in the March quarter? If you have an estimate?

The best point that we have is to mismatch the loose there between the movement in market size from December to March, where drivers were off then at 2% but PCs were down 7%. Sherri Scribner – Deutsche Bank: Okay. And then in terms of the litigation settlement, can you provide us a little more detail on what that litigation settlement was about? And then also I'm making the assumption that, that settlement was in the SG&A line, and is that correct?

That's correct. Substantially, all of the expense for litigation related to the nightsel [ph] lawsuit described in our previous SEC filings. We do not or did not admit any liability. However, we settled in order to avoid the expense and distraction and uncertainty of ongoing litigation.

Steve Fox with CLSA. Steve Fox – CLSA Limited: Hi. Good afternoon. First of all, just another question on Hoya. When you look at the net benefit once you've, I guess, improved efficiencies. Can you talk about the accretion a little bit more and at least maybe provide a guidepost on internal costing versus external purchases of those splatters?

Well, I mean, that's about as much a bit that half percent is about as much as we're going to say. But it has an important benefit to us, and that its secures supply for us. And of course, it gets us back to our model on internal versus external. Those are two critical things for us. Steve Fox – CLSA Limited: And then just from a competitive behavior standpoint, if the unit demand place up, like you just discussed, why is it that we should have some confidence that whenever large players won't continue to be aggressive on prices, is there any signs that would be positive that they may have started to be more responsible with pricing?

Well, you have to put yourself in position of the players in the market. This is not an old boy's club. It's a competitive commodity market place, and we didn't grow revenue by 22% annually for the last five years and by 20% annually over the last 10 years by sitting back and relaxing. We did it by providing exceptional value to our customers in quality, reliability, desirable products, availability of product and price. And then on the other side of that we expanded our gross margins throughout that process, where we went from 10% market share to over 30% market share. At the same time that we expanded our margins from 12% to 21%. So I think what we're seeing is that the third large player who has significantly improved internal execution and capability over the course of the last few years, and is now in a position to seek to grow just as we have been and are. And so the real issue is, have you got the right products, are you able to make them at the right cost to profitably grow your business on an ongoing basis in a market that offers a 15% annualized growth in demand? And if you can answer yes to all of those boxes, you got a great business, which grows consistently on revenue and profit, and returns great value to the shareholders of those businesses. Steve Fox – CLSA Limited: Okay. Fair enough. Thanks for the perspective.

Mark Moskowitz with JPMorgan. Mark Moskowitz – JP Morgan Chase & Co: Yes, thank you. May be I can follow on that last topic. I'm just trying to get a sense in terms of the third major participant that executing better – do you think there was any sort of misread on their part, where may be they don't have all the reporting mechanisms in place as Seagate and WD have in terms of trying to early stop the very fluid ebb and flow of both the channel as well as the OEM markets, or is it more of just – did these guys made a concerted kind of stone as that what I recall. Second quarter in a row now where they're quarterly growth is outside between you and SeaGate.

We'll have to wait and see till they report as to exactly what they've done from unit's revenue, profitability perspective. There is of course, you have to recognize the models. And whenever quarter-over-quarter demand is lower, that all those favors the small player in that environment in terms of their growth because if you have, let's say, pick a number, if you have 10% share at a major OEM and your two major competitors have 45% each and the market goes down. As the small player, you can afford to bid aggressively to get an increasing share and either keep your volume constant or grow it, and get the benefit of that growth on your bottom line. For the very large participant at any given customer to lean into that wind and price to grow volume, it's usually too costly to do that. So there's a natural tendency for the small players to grow when the market goes down, and then the ability of the large players to scale up rapidly causes them to typically grow when the market demand moves up. Mark Moskowitz – JP Morgan Chase & Co: John, maybe as a follow-up to that discussion point, can you give us any more color, I know Keith tried to ask it earlier, I guess we're all just trying to understand. As disturbed participants being used as a lever by the OEMs that they really extract some pricing discounts. Are you seeing them start to have a lot more phone [ph] in the glass China where section here where HP and Dell and others now recognized disturbed participant as may be a legitimate source in both desktop and notebook more something of historically?

Yes, we do a lot of procurement and we prefer multi-sourced model. Mark Moskowitz – JP Morgan Chase & Co: So this could be of information that could be more comp rather than acute – ?

Yes, but throw your mind back. It's been this way for the last 10 years. The OEMs have sought multiple suppliers, and those people who had a good business model don't just look at WD's performance in an environment that was much more competitive than it is today. There were a lot more players and a lot more choices for the customers. And so over the years, we've not only survived but thrived in that environment, and I see every reason to expect to continue to do the same as we go forward. Mark Moskowitz – JP Morgan Chase & Co: Okay. Just last question if I could. As far as the debate over Ocean versus Airfreight, it seems based on my analysis that over the last 18 months we've seen a pretty big shift already to Ocean versus Air across the PCs. Is this a customer acknowledgment that maybe the company down through Round Rock has been [inaudible] in their the Ocean Freight in the last call at quarter two to catch up with their peers? Is this causing some of the disturbance in your model?

I mean it's been a rolling phenomenon across the major PC companies that as more and more competition has emerged from Asia, where the business models tend to require a smaller net margin, that has certainly caused all the traditional players to dig deeper looking for a lower cost, and Sea Freight is one element of that lower cost. But it does create a little bit less visibility into real demand because it extends the time between the decision to build and the actual sale.

Kay Huberty with Morgan Stanley. Kay Huberty – Morgan Stanley: Yes, thanks. Good afternoon. John, it sounds like a big swing factor in the second half will be the demand going back to school and therefore, the behavior around holiday builds. What are the other one or two big swing factors you see that could impact results either positively or negatively?

Well, I mean the biggest one that we're looking at is macroeconomics. And whether the European recipe for recovery works and whether the U.S. stays on track, that's kind of the biggest dark cloud that we're continually looking at. And then the sunshine that's lurking behind that is the commercial refresh and the rate at which that progresses. And I guess there's a moon there as well which is the strength in Asia, which is significant. Kay Huberty – Morgan Stanley: And on the commercial point, are you seeing any air freighting commercial demand where you could potentially see those builds get pulled forward into September or is the – sorry, the ocean freighting, just consumer or is it also commercial?

There's some commercial on boats, too. But commercial has a large component of desktop in it and typically they are regionally assembled and the drives are air freighted into those locations. Kay Huberty – Morgan Stanley: And then lastly, do you shares SeaGate's view that you won't be able to reset ASPs as an industry until the next day product cycle that comes in 12 months?

No. Kay Huberty – Morgan Stanley: And what would be – ?

And we're just – I mean, we're – our model is not solely driven by product refresh. Our model is driven by continuous provision of the demand that capacity points at the best mix of technologies that support continuous and ongoing cost reduction. So we're going to have to wrap it up now. I want to thank everyone for joining us today. And we look forward to speaking with you and meeting with you in the months ahead. Thank you.

Thank you. This does conclude today's conference call. You may disconnect at this time.