Good afternoon, everyone, and thank you for standing by. Welcome to Western Digital's Third Quarter Fiscal 2024 Conference Call. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions]. As a reminder, this event is being recorded. Now I will turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis and Investor Relations. You may begin.

Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based upon management's current assumptions and expectations, and as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plan and performance, the separation of our flash and HDD businesses, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties and that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to David.

Thank you, Peter. Good afternoon everyone and thanks for joining the call to discuss our third quarter of fiscal year 2024 performance. Western Digital delivered excellent results in the quarter with revenue of $3.5 billion, non-GAAP gross margin of 29.3% and non-GAAP earnings per share of $0.63, all of which exceeded expectations. Our strategy of developing a diversified portfolio of industry-leading products across a broad range of end markets, coupled with structural changes we have made to both of our businesses, is unlocking our true earnings potential and allowing us to continue improving through-cycle profitability and dampening business cycles. This strategy enables us to generate higher earnings per share even in a constrained supply environment. In addition, our commitment to achieving operational efficiency and enhancing our agility has allowed us to run our flash and HDD businesses more efficiently and further drive innovation to take advantage of new opportunities. In particular, as the technology landscape continues to evolve, the demand for AI solutions is becoming increasingly apparent across our end markets. The uptick in AI adoption is highlighting the incredible value of data and will drive increased storage demand across both HDD and flash at the edge and in the core, providing greater long-term growth and margin expansion opportunities for Western Digital. We are in the early innings of unlocking the full potential of this company, and our team remains focused on improving the profitability of our business to drive long-term margin expansion and shareholder value as these new demand opportunities present themselves. Before I dive further into the demand environment, I want to briefly comment on the status of the separation of our flash and HDD businesses. I am proud of the team's ongoing efforts as we drive towards completion of the separation in the second half of the calendar year. We remain focused on achieving the separation as soon as possible, and we'll continue to provide further updates on our progress as appropriate. Moving on to end market commentary. I am pleased to report that during the quarter, revenue in all of our major end markets returned to year-over-year growth. In cloud, we experienced 29% growth in revenue from a year ago, highlighting the incredible success of our industry-leading HDD product line. In addition, we began to experience an increase in demand for our flash-based solutions, signaling a long-awaited recovery in this end market. In client, 20% revenue growth from a year ago was driven by increased bit demand for our flash-based solutions, coupled with an increase in ASPs. In consumer, we experienced 17% revenue growth from a year ago, highlighting the power of the SanDisk premium brand. Higher flash bit sales, combined with a better pricing environment more than offset the continued decline in consumer HDD demand. I'll now turn to business updates, starting with flash. Our sequential revenue growth in the quarter reflects the continuing commitment to disciplined capital spending and carefully optimizing bit shipments into our most profitable end markets to take advantage of the improved pricing environment. This approach, combined with the strength of our product portfolio has enabled us to drive significantly higher profitability while strategically managing our inventory. On the technology front, we achieved a significant milestone by initiating mass production of our QLC-based client SSD, leveraging BiCS 6 technology. This is yet another significant milestone demonstrating our continued commitment to innovation and market leadership. These advancements pave the way to spearhead the market's transition to QLC-based flash solutions in calendar year 2024. Additionally, our progress with BiCS 8 is on track. While this technology is ready to be productized as market conditions warrant, our innovative offerings will remain at the forefront of the market, further strengthening our competitive position and bolstering our growth prospects. As noted earlier, in the third quarter, we began to experience an increase in demand for our enterprise SSD solutions. We are seeing demand returning for NVMe SSDs that we qualified before the downturn. We are also experiencing significant interest in providing these products in dramatically higher capacities for AI-related applications which we expect to ship in the second half of the year. In addition, we are also sampling our newest high-performance PCIe Gen 5, BiCS 6-based enterprise SSD. We are preparing for qualification at a hyperscaler and the product is generating significant interest in the enterprise market. We expect to ramp in the second half of the calendar year. Turning to HDD. The sequential revenue increase was driven by improved nearline demand and higher pricing as we focused on optimizing profitability per exabyte sold. In particular, nearline revenue reached a fixed quarter high, reflecting the successful strategy we put in place to bring the most innovative, high-capacity and high-performance drives to market. We have the right products at the right cost structure, which are reflected in our financial performance. Our cloud customers continue to transition to SMR with our 26-terabyte and 28-terabyte UltraSMR drives, quickly becoming a significant portion of our capacity enterprise exabyte shipments. SMR-based drives represented approximately 50% of nearline exabyte shipments in the quarter. Our portfolio strategy to commercialize ePMR, OptiNAND and UltraSMR technologies in advance of our transition to HAMR, has proven to be the winning strategy and enables us to deliver to customers the industry's highest capacity and leading TCO drives, all of which can be produced at scale with controlled costs. We are confident that our product strategy, which combines UltraSMR technology with upcoming advancements in nearline drives is enabling Western Digital to deliver best-in-class gross margin in HDDs all at a time when AI is emerging as another growth engine for the industry. As we move toward a new supply and demand environment, characterized by higher demand, supply tightness and product shortages, we are leveraging our proven technology we've already introduced to the market to meet the demands of our customers with the right portfolio at the right time, while also operating with a lean cost structure for continued profitability improvement in our HDD business. Although the actions we are taking have improved profitability, we remain focused on driving higher margins to appropriately value the incredible amount of innovation and TCO improvements we continue to deliver to our customers. Before I turn it over to Wissam, I wanted to share some perspectives on our outlook. Within Flash, in addition to growth opportunities at the edge, which is Western Digital strength, we are encouraged by the returning demand within the enterprise SSD market and expect growth throughout this calendar year. AI-related workloads are driving increasing demand for enterprise SSDs, and our portfolio is well positioned to support those use cases. Looking ahead, we anticipate bit shipments to remain flat into the fiscal fourth quarter and look to Flash ASP increases to be the primary revenue growth driver led by our focus on allocating bits to the most high-value end markets amidst the tightening supply environment. While we're pleased to see pricing trends moving in a positive direction, it's crucial to acknowledge the importance of maintaining capital discipline and only reinvesting capital back into the business once profitability improves further, and we see sustained demand. Overall, our continued focus on improving profitability through our innovation road map, disciplined capital spending and strategic pricing initiatives position us well for continued success in calendar year 2024 and into 2025 by offering the most capital and cost-efficient bits in the industry. In HDD, the success of our portfolio of leading capacity enterprise products, combined with the restructuring efforts we've implemented in recent years are yielding improved unit economics and greater visibility. As cloud demand is recovering, we anticipate continued growth driven by higher nearline demand and better pricing as we are now in a supply-constrained environment. We're optimistic about aligning the pricing of our products to better mirror the innovation we are integrating into them, supporting long-term margin expansion in our HDD business. As we reap the rewards of the innovation and operational efficiencies that we've implemented, we will look for opportunities to reinvest in the business when the conditions are ripe for expansion. We will approach every capital allocation decision with a focus on discipline. Let me now turn the call over to Wissam, who will discuss our financial third quarter results.

Thank you, and good afternoon, everyone. Following on David's comments, Western Digital return to profitability and free cash flow generation and delivered great results in the quarter, which exceeded expectations. Total revenue for the quarter was $3.5 billion, up 40% sequentially and 23% year-over-year. Non-GAAP earnings per share was $0.63. Looking at end markets, cloud represented 45% of total revenue at $1.6 billion, up 45% sequentially and 29% year-over-year. The growth was primarily attributed to higher nearline shipments and improved nearline per unit pricing with Flash revenue up both sequentially and year-over-year. Nearline bit shipments of 108 exabytes were up 60% sequentially. Client represented 34% of total revenue at $1.2 billion, up 5% sequentially and 20% year-over-year. Sequentially, the increase in Flash ASP more than offset a decline in Flash bit shipments, while HDD revenue decreased. Year-over-year, the increase was driven by growth in both Flash and HDD ASPs and Flash bit shipments. Consumer represented 21% of total revenue at $0.7 billion, down 13% sequentially and up 7% year-over-year. Sequentially, both Flash and HDD were down at approximately similar rates and in line with seasonality. On a year-over-year basis, the increase was driven by growth in flash bit shipments and ASP. Turning now to revenue by business segment for the fiscal third quarter. Flash revenue was $1.7 billion, up 2% sequentially as ASP increased 18% on both blended and like-for-like basis. Bit shipments decreased 15% from last quarter as we proactively focused our flash bit placement to maximize profitability. Flash revenue grew 30% from fiscal third quarter of 2023 on higher bits and ASP. HDD revenue was $1.8 billion, up 28% from last quarter, as exabyte shipments increased 41% and average price per unit increased 19% to $145. Compared to the fiscal third quarter of 2023, HDD revenue grew 17%, while total exabyte shipments and average price per unit were up 25% and 33%, respectively. Moving to gross margin and expenses. Please note, my comments will be related to non-GAAP results unless stated otherwise. Gross margin was 29.3%, well above the guidance range. Gross margin improved 13.8 percentage points sequentially and 18.7 percentage points year-on-year due to better pricing, our continued focus on cost reduction, and lower underutilization charges. Flash gross margin was higher than expected at 27.4%, up 19.5 percentage points sequentially and 32.4 points year-over-year. There were no underutilization charges in the quarter. HDD gross margin was 31.1%, up 6.3 percentage points sequentially and 6.8 percentage points year-over-year. This includes underutilization charges of $17 million or 1 percentage point headwind. HDD gross margin is within our long-term target range, including underutilization charges. This underscores the team's focus on cost reduction and profitability as previously, this level of gross margin was achieved with higher revenue. Operating expenses were $632 million for the quarter, up 13% sequentially and 5% year-over-year. The sequential increase was mainly driven by higher variable compensation associated with better-than-expected financial results. Operating income was $380 million, which included HDD underutilization charges of 17 million. Tax expenses in the quarter was $51 million, reflecting the improved financial outlook for the fiscal year. Fiscal third quarter earnings per share was $0.63. Operating cash flow was $58 million, and free cash flow was 91 million. Cash capital expenditures, which include the purchase of property, plant and equipment and activity related to flash joint ventures on the cash flow statement represented a cash inflow of $33 million. Third quarter inventory was flat from the prior quarter at 3.2 billion, with days of inventory increasing 4 days to 119 days. A decline in HDD inventory offset an increase in Flash inventory. Gross debt outstanding was $7.8 billion at the end of the fiscal third quarter. Cash and cash equivalents were $1.9 billion, and total liquidity was $4.1 billion, including revolver capacity of $2.2 billion. For the fiscal fourth quarter, our non-GAAP guidance is as follows. We expect revenue to be in the range of $3.6 billion to $3.8 billion and project sequential revenue growth in both HDD and Flash. In HDD, we expect continued momentum with our industry-leading SMR product portfolio aimed at the cloud. In flash, we anticipate bits will be flat and ASP is up as we continue optimizing our bit placement to maximize profitability. Gross margin is expected to be between 32% and 34%. We expect operating expenses to be between $670 million and $690 million with the increase mainly related to certain project-driven investments, coupled with higher variable compensation as the financial outlook has continued to strengthen. Interest and other expenses are expected to be approximately $105 million. We expect income tax expense to be between $30 million and $40 million for the fiscal fourth quarter and $130 million to $140 million for fiscal year 2024 as the financial outlook improved. We expect earnings per share to be $1.05, plus or minus $0.15, based on approximately 342 million shares outstanding. The financial outlook has strengthened, and we will remain disciplined in executing the business, controlling our capital spending and improving our profitability. I will now turn the call back over to David.

Thanks, Wissam. Let me wrap up, and then we'll open up for questions. I'm pleased with the team's performance in developing a diversified portfolio of industry-leading products across a broad range of end markets. As industry supply and demand dynamics continue to improve, we will remain disciplined around our capital spending and focused on driving innovation and efficiency across our business. Coupled with the structural changes we have made to our businesses, we are confident in our ability to drive greater through-cycle profitability and dampen business cycles. As we move forward, we remain uniquely positioned to capitalize on the promising growth prospects that lie ahead, solidifying our leadership position in the industry, particularly as AI continues to drive new storage solution opportunities and growth. Okay. Peter, let's start the Q&A.

[Operator Instructions]. Our first question today comes from C.J. Muse from Cantor Fitzgerald. Please go ahead with your question. C.J. Muse: Yes. Good afternoon. Thank you for taking the question. I guess first question on the HDD side, the gross margins are spectacular and if we take out the underutilization you're north of 32%. So, curious from here as you think about on-going tightness, on-going growth in demand led by the cloud and a pricing strategy where I think you and your main competitor are being extraordinarily rational. How do you think the progression for that part of your business will look through the remainder of calendar '24 and into '25?

Hi, C.J., thanks for the question. Yes, we're -- the HDD business, we're really happy with where the portfolio is at. I think that's where it starts, bringing great products to market that deliver the highest capacity points and the best TCO for our customers and when we're able to do that, we can share in more of that TCO advantage we're bringing to market. I think that's been the strategy for quite some time, and we're really happy with where the portfolio is and it's really resonating with customers. But the other side of that is making sure we really control the cost side of it, so we're really focused on making sure we bring the lowest cost product as well and that leads to the margin expansion. And then we -- of course, we've got a returning demand environment as we get the cyclical recovery in HDD spending coming off of the lows that we all really understand. Going forward, we talked about a little bit in the prepared remarks. We expect to continue to bring great products to market. We expect to continue to drive better TCO for our customers and we're in an environment now where we have supply/demand balance and we've -- significant restructuring of our business during the downturn. We've taken capacity -- we've set our capacity of what we think the market needs as we emerge into this demand environment. We do see better supply/demand alignment. We see tightness in the market, that's leading to what you would expect as customers giving us more visibility into what their ordering looks like going forward. So we're optimistic about being able to continue to drive profitability of this business higher. C.J. Muse: Very helpful. And as a quick follow-up, on the NAND side, I think you guided last kind of high-teens bit growth and I'm just curious, is that still a number in play or given your prioritization of highest profitable areas of NAND, should we be thinking about a different number? And you're not talking about production, but actual revenue bits?

You mean for our -- for what time period, just to make sure I understand your question? C.J. Muse: My apologies, for calendar '24.

Calendar '24, look, we see -- yes, we still see demand in the mid to -- call it, the mid- to high teens for the market. We see supply like about 8% of bits in production. So we still see an undersupplied market. For us, we had bits down this quarter, we forecast them down double digits. We were right about that, maybe a little bit more flat going into next quarter as we kind of optimize our supply throughout the year where we can think we can get the best profitability. C.J. Muse: Thank you.

Thank you C.J.

Our next question comes from Joe Moore from Morgan Stanley. Please go ahead with your question.

Great, thank you and congratulations on the results. In terms of the outlook, looking for 4 points of gross margin improvement, it seems like the like-for-like pricing, certainly in NAND is a lot better than that. HDD seems pretty good as well. What are the offsets that you only would see sort of 4 points of gross margin expansion given the improvement that we're seeing in absolute pricing?

Hey Joe, thanks for the question. Look, our guide comprehends a balanced view of what we have in terms of information today with the outlook; yes, we see improvement in margins in both of the businesses. So on the flash side, we still anticipate improvement in pricing that will help gross margin move a bit higher from here. And on the HDD side, as David mentioned, we continue to focus on the obviously, the great technology that we deliver, but also the cost discipline and pricing of the products. So, all of these are comprehended in our guide.

Great and then as a follow-up, you sort of talked about these higher density SSDs in the second half of the calendar year for AI purposes. Can you talk about what has to happen to sort of get those drives out? Like is it you need new capacity points that you don't currently serve and then can you talk generally, it seems like AI is having some positive effects on both sides of your guys' business. Can you talk about that a little bit?

Yes. So what I would say about the AI demand as it's coming into focus. I don't think it's so much in the results just yet, but we're seeing where it's going to impact both businesses. And clearly, one of them you just outlined, which is we're seeing enterprise SSD demand return, we saw some increase in the last quarter. We expect some increase in this quarter. But really, as we look to the second half, we have customers coming to us wanting the kind of SSDs we built and qualified before the downturn. They just want them in much bigger capacity points, 30 and 60 terabyte capacity points. So it's the same product just taking it and increasing capacity and going through a qualification on that so we're in that process with customers. We also introduced a new SSD that's more compute focused, which is PCIe Gen 5 product based on BiCS 6, very high performance that plays a little bit different role in the AI training stack and we're getting very good feedback on that product. It's being qualified by our starting qualification, we samples. We're kind of getting rid of the qualification of the hyperscaler and we're seeing good demand in the enterprise market as well. So we feel like the portfolio set up well as we go into the second half, and we're seeing a lot of demand show up for people that are very building large amount of infrastructure for model training.

Thank you.

Thanks, Joe.

Our next question comes from Aaron Rakers from Wells Fargo. Please go ahead with your question.

Yes, thanks for taking the question. I've got two as well. The first question, I just want to go back to kind of like the gross margin dynamics with regard to the hardware business. David, if you look back a couple of years, right, you peaked at like 150, 155 exabytes of capacity shifts. As we hear about the industry being constrained, where do you -- where would you characterize your capacity footprint today? And is it fair to assume that you have to see gross margin at or even above the high end of the 31% to 34% target model that you've laid out to kind of come back in and add capacity?

Yes. That's how we're thinking about it. This is a -- I've talked about this quite a bit and this is an industry that I think has been oversupplied with this client-to-cloud transition, it's been going on for 15 years. I think the downturn was in time when we saw a significant change in demand to say the least that we just decided to remove capacity to get supply and demand better balance. So as we -- we're just emerging into that market, Aaron. I mean I think as we start to see this market play out and dynamics get to the kind of business model and get more visibility into what the future is. We can have confidence in making investments if that's what we need to do to expand capacity I think as all of that comes into focus, and it's starting to happen. We're starting to see that. We're getting more visibility. We're getting to participate more in the TCO advantages that we're bringing to the market. We're seeing better dynamics and as that continues -- and we get more confidence, we're not there yet, then we would think about how do we bring more capacity into the market? But we're just at the -- we're kind of getting to the starting line is, I guess, what I would say.

Yes that's helpful. And then as a quick follow-up, just on the enterprise SSD topic. I think prior to the downturn you had talked about, I want to say it was 2 or 3 cloud OEMs that you had designed in with the NVMe drive, can you just talk about the breadth of what you're expecting? It just sounds like you're kind of getting back into the market, optimizing displacement there. So how do we think about the breadth of the customer base in that enterprise SSD space?

Yes, you got -- I mean it's the -- what we're seeing now is when the market is coming back we're seeing those customers now come back up to a very long digestion period. And this is something we've been waiting for quite some time. Like every market from consumer to PC to near line on the HDD side has gone through this big digestion phase. And I think enterprise SSD was the one we were waiting to see when we're going to come out of that. And that's what we're starting to see. So we're seeing a couple of dynamics in that market. We're seeing those enterprise SSDs that we had qualified, the very same products now we're getting orders for as that digestion phase ends and they get -- they start to ramp ordering back. And then we're seeing the kind of AI impact on different capacity points, different use for model training we're starting to see that demand come in the market. So we're seeing both of those things happen. We think the portfolio is well positioned for those markets. We expect that to play out through the rest of the year and we're excited about it.

Thank you.

Thanks.

Our next question comes from Wamsi Mohan from Bank of America. Please go ahead with your question.

Yes. Thank you so much. On the HDD side, you had a very outsized exabyte quarter-on-quarter growth in the quarter relative to your nearest competitor. How are you thinking about the continued trajectory here in terms of exabyte growth perhaps both quarter-on-quarter basis, but also maybe calendar '24 versus calendar '23.

Yes. We're seeing -- I mean, big picture we're seeing a return in demand. Obviously, I think it was the largest sequential exabyte growth we've seen in a very long time. I hesitate to say ever because this is -- business has been around a very long time. But to go back as far as we could look, it was the biggest sequential increase we had seen. And it's -- as I said earlier that starts with having products that really resonate with our customers. We really believe very strongly in the technology road map we've built around ePMR and UltraSMR and is resonating very strongly with customers. Nearly 50% of exabytes shipped this quarter was SMR and we're set up well for what we talked about last time where we expect over half of our exabytes in FY '25 to be SMR-based. So like we said, coming into the fiscal year that we expected sequential growth throughout the fiscal year last quarter we extended that to the calendar year and we still see that. So we still see sequential exabyte growth going forward throughout this calendar year.

Okay. Thanks for that. And as a follow-up, on sort of reinvesting on capacity side, on the HDD side. I think you said when conditions are ripe for reinvesting, and I know to Aaron's question earlier you commented on certain gross margin ranges, but this cycle, your gross margin is much higher at lower revenue levels than past cycles. So clearly it feels as though at least you have the capability to drive peak margins much higher than your established long-term range. So why should 33 be maybe the level at which you reinvest? Why wouldn't it be 34, 35 or higher than that?

Well, we haven't really set a bogey for that. We want to look at the holistic marketing. Again, that -- I understand this question everybody is looking for when we would reinvest, but that's really not what we're even thinking about right now. We're thinking about getting a market that's balanced on supply and demand, delivering great products to our customers that can meet the needs of the growth of the cloud. And I think that to your point, I think the business is emerging what we planned for and a lot of hard work that went in over the last couple of years which is to come back in a much healthier position with the ability to drive greater profitability. So we're just getting back to the bottom of the range that we set a couple of years ago. It's not as if we're declaring victory in that at all to your point, like I said, I feel like we're just getting back to the starting line of where we need to drive the business to, but we feel very good about to be able to drive increased profitability in it. Look, it starts with delivering great products to your customers like we have to continue to bring better TCO. And I think we have got a tremendous architecture to do that while controlling our cost to build the product. We have to work stay focused on both sides of this equation. We got to have the lowest cost and then the best TCO that allows us to drive pricing which drives margin expansion. So we're working across that whole equation. And I think the strategy is working quite well. And that's why we saw -- when we saw some -- we saw the demand return, we saw the margins pop up. But to your point, we believe we can -- we're just getting started on this.

Thank you so much.

Our next question comes from Karl Ackerman from BNP Paribas. Please go ahead with your question.

I'm curious your thoughts on the decision to prioritize the transition to BiCS 8 for the mobile market rather than SSDs because AI demand appears concentrated in high-capacity enterprise SSDs. And I guess as you address that question, could you discuss your opportunity to provide QLC enterprise SSD to address these inference applications that appear to be supporting 30 and 60-terabyte units.

Yes. Thanks, Karl. So haven't really said where BiCS 8 is going to go. That's in our future. That's one thing we feel really good about is the technology is there and we'll bring it to market when we see it's the right time to do that when we got the right profitability, the right supply-demand characteristics to invest in prioritizing that node, the technology is in great shape. But we haven't really outlined exactly which products are going to go there first or second or third. So that's still in our future. As far as your point on QLC, this is -- we're now starting to transition to BiCS 6. And so we talked about a couple -- a number of products here that are BiCS 6 based which first the client SSD, you didn't -- I'll talk about enterprise SSD as well, but we our client SSD has been extremely well received. The performance of it is outstanding. We have our own internal controller team. They've done an amazing job of building a really, really high-performance QLC client SSD. We expect that to lead the market and lead that transition in that part of the market and then we're bringing BiCS 6 into our enterprise SSDs as well. So that will be lever we have to drive BiCS 6 which gives us more capacity, better performance and so we feel good about that transition is now starting and the products are starting to show up. They're in customers' hands, and they've been very, very well received.

Thank you.

Thanks, Karl.

Our next question comes from Amit Daryanani from Evercore. Please go ahead with your question. Q – Amit Daryanani: Thanks a lot. Good afternoon. I have two questions as well, I guess. First on the HDD side, I'm wondering, do you think given some of the challenges on Hammer qualifications that Seagate's having, if you potentially saw a bigger uplift in market on the near line side and you think that market share could potentially sustain or does some of that kind of flow back as those qualifications get done. So I'd love to understand if the share gains you think you're seeing are sustainable or not. And then on the flash side I would like to just maybe get your perspective. I know you folks are talking about bit growth being flat in June. But as some of these qualifications ramp up in the back half how do you think about bit growth ramping up into the back half of this calendar year?

Yes. So on the first question, the business with our customers is planned pretty far in advance. So there wouldn't be a situation where something would happen intra-quarter and that would drive a big share shift. The reality is we've got great products, and they're very much resonating with our customers and we can deliver them at scale. And they have bring best-in-class TCO and clearly customers are adopting those at a significant rate. So -- like is it sustainable? We continue to bring great products to market. That's what we plan to do. We're very confident in our road map on HDD and we'll continue to bring the best TCO solutions to our customers. On bit growth, we do expect flat bit growth into the calendar Q2, but we'll see a pickup in bit growth in the second half of the year.

Got it. Thank you.

Thank you.

Our next question comes from Harlan Sur from JPMorgan. Please go ahead with your question.

Good afternoon. Nice job on the quarterly execution. Another question on enterprise is so you guys have been really smart on how you are allocating flash bits, right, with a strong focus on profitability. So as you reallocate more bits towards eSSD in the second half, is the profitability profile of enterprise SSD portfolio expected to be accretive to the overall flash business and your shares peaked previously sort of in that sort of high single-digit percentage range in enterprise. Just given a more competitive portfolio, like what type of share is the team targeting kind of mid- to longer term?

Okay. Thanks, Harlan, your questions are very related. So we saw a pickup in enterprise SSD in the March quarter. It's still -- quite honestly, it's still relatively small numbers, but it's growing quite well. So we wouldn't have supplied those bits if it wasn't the right thing to do from a portfolio strategy point of view. We'll see when we get to the second half, what pricing looks like, that versus other options we have, and then we'll decide how much supply we put into those products. And you're really getting into core of our portfolio strategy, which is to have a lot of optionality. We have a lot of optionality across client SSD, across gaming, now across enterprise SSD, across mobile, across consumer, obviously, which is a big business for us. And then based on what we see going into the quarter. And then very importantly, what happens during the quarter, how do we allocate our supply to get the best return? And clearly, we're in an environment right now where things got better throughout the quarter. So as we go through the quarter, we find more opportunity to mix and get more profitability, and that's what happened in the March quarter, and you saw the results of having that agility into the business. So I really don't want to call a share number or anything like that because it tends to distort, what we want to do is maximize profitability, not maximize share in any particular market. We want to maximize where we get the most return for our supply.

I appreciate that. And then maybe a question on BiCS 8. I know you're not calling out any timing yet, but you have had it sort of in preproduction for quite some time. How are the early yields on this technology? And I guess, more importantly, like can the team still drive mid-teens percentage annualized type cost down with the new bonded the raise technology?

Yes. So what I'll say about yields is we're very confident in the technology. I mean, we feel very, very good about it. It's a major advancement in the architecture OptiNAND from an industry perspective to the CBA architecture. And it's -- the development has gone well. We feel very good about it. We can productize it when we need it. Again, this gets into a larger conversation about the dynamics of the market and when is the supply needed, and we're going to be very, very disciplined about going through any transition or putting any CapEx to the market until we see the profitability that we want to get. So we feel very good about BiCS 8. There was a second part of the question.

On the cost downs.

Cost downs.

Yes, maybe I'll take that, Harlan. Yes. On the cost down, we're still anticipating the mid-teens percentage year-on-year cost downs. So there's no change there.

Perfect. Thank you.

Thanks, Harlan.

Thank you.

Our next question comes from Carlos Colorado from UBS. Please go ahead with your question.

Thanks for taking my question. So I have -- the first one is about nearline. You are going outperforming your competition by a lot. So what are the underlying reasons in your opinion for this? And do we have to expect this to normalize over time? And do you think this can be sustained? And I have a follow-up. Thanks.

Yes, the performance of the HD business is driven by the product, right? It's pretty straightforward. Products are -- they're great products. This architecture that we built on ePMR, OptiNAND, UltraSMR, customers are really committed to SMR. They deliver the best TCO in the market. We can produce them at scale and that's what leads to the performance.

Okay. Thanks and the follow-up is, you mentioned that AI has revenues are of SSD sales. You have a perfect vantage point to see if AI is driving applications that traditionally were HDD is that now being transferred to SSD some of those applications, or is the classic question on cannibalization from one to the other. Is that -- is AI change in that scenario? Thanks.

We do not see any cannibalization clearly, HDD plays a big role in the AI storage life cycle as well as the whole ingest phase because all of the big data lakes and all of the raw data sets, those are all going to be stored on HDD. It's just the economics of where you store that data and how do you access that data. It's all that part of the AI pipeline, if you will, is going to be HDD. Now you have all of these other new use cases around training and inference, and those are all going to be SSDs. So it's really about growth as opposed to substitution. And that's what's so exciting about this. And obviously, once you get the models trained, then the models are going to turn out more data, which is going to be stored on HDD. So you got this virtuous cycle going. So it's kind of literally rising tide lifts all boats. It's not a substitution game. Clearly, there's a lot of new use cases being developed around AI, like the whole training infrastructures that are being built, that's what's driving these very high-capacity storage-based enterprise SSDs that we're seeing demand for. So hopefully, that helps.

Our next question comes from Krish Sankar from TD Cowen. Please go ahead with your question.

Thanks for taking my question. I have two of them. First one on flash for Dave. You spoke about the BiCS 6 hyperscale qualifying it. My understanding was a BiCS 6 was kind of more like a sub node and BiCS 8 is going to be the bigger one. I'm just kind of curious to get to your enterprise SSD market share target. Do you really need BiCS 8, or can you achieve it with BiCS 6? And then I have a follow-up.

You're right. BiCS 6 is when we say stub node, it's we're not going to take the whole portfolio to BiCS 6. So we have a big portfolio, and we're choosing which products to take the BiCS 6. And clearly, we're taking the products that require QLC and the kind of things you're talking about. So we feel good about our node a plan in the fab being able to supply what we need in these markets.

Got it. Got it. And then, Dave, on the hard drive side, I think you said in the past that you can get to 40 terabytes of the ePMR technology. I'm just kind of curious with obviously a competitor like trying to ramp up HAMR, and it took them a while like a few years to even get the 3 terabytes per disk in R&D to [indiscernible]. Can you give us an update on your HAMR road map or the status of your HAMR technology, how we think about 30, 40 terabytes plus.

So we've been working on HAMR for quite some time. We understand HAMR extremely well. We understand all the issues with HAMR, and what it takes to get it qualified. Clearly, we're doing that all behind the scenes because we have a product portfolio with the best TCO we can offer in the market today, and we can do that all the way up to 40 terabytes. And 40 terabytes is where the economics flip over and you get the 4 terabyte per platter or 40 per unit, where essentially the capacity increase will cancel out the increase in costs you have to put in the unit to get the economics to work on margin, right? That's kind of a complicated -- a lot to say in 1 sentence. But our portfolio is very focused on the right product with the right cost at the right time. The right time for HAMR is at 40 terabytes. And we've got a lot of development going on that product. We have for a long time. We, quite frankly, don't need to do it in public because we have another portfolio that's selling extremely well, which we've talked about throughout this process. But have a lot of confidence in our HAMR development. And quite frankly, our customers know exactly what we're doing, and where we're at and what our plans are, and they're comfortable with that as well.

Thanks, David.

And our next question comes from Tom O'Malley from Barclays. Please go ahead with your question. Tom O'Malley: Thanks for taking my question. I'm going to do one on the CFO side real quick on OpEx. So big step up in the June quarter, and you're talking about some special projects. How should we think about that progressing? Is that investments that are going to stick around for the next couple of quarters? Or should that reset back to kind of the lower base you've been running out? You've just seen OpEx move from kind of the 550 to 660 over the past year, obviously, revenue increasing as well, but any color there on what that investment is for and if you see a step down after that?

Yes. Sure, Tom. So let me first start by saying that the way we think of OpEx is we don't see OpEx increasing faster than revenue. So we're still very focused on that cost discipline and OpEx discipline. When it comes to this quarter, we're expecting some increase. The increase is almost 50-50 driven by variable comp as the financial outlook has improved much faster than anticipated. So there's a bit of increase there. But also, as you mentioned, there's some project-specific R&D investments that also -- that we have sort of a direct correlation and line of sight to revenue. I would say for the next couple of quarters, the range that we've guided for Q4 is a reasonable range. I know it's too early to talk about fiscal year '25. But for modelling purposes, we can use the same type of numbers for now. Tom O'Malley: Helpful. And if I look at your cost guidance for the year, a couple kind of with what you're looking at for June of '24, when I'm looking at gross margins, it seems like you need to have a pretty significant step-up in HDD gross margins. Are you planning for all of that the underutilization to come out of the model in the June quarter? And if any remains, can you let us know how much you're expecting?

So for this most recent -- for Q3, we had a little bit -- and we disclosed, we talked about those. But as you can see, the numbers are becoming less and less significant. And so for the June quarter, there's still a little bit, but it's not really very significant for us to talk about on this call. Tom O'Malley: Thank you.

Thanks, Tom.

Thanks, Tom.

Our next question comes from Vijay Rakesh from Mizuho. Please go ahead with your question.

Yes, hi. David, Wissam. Just a quick question on the Flash side. Dave, when you look at the profitability, as you mentioned, how does the BiCS 6 compare to -- if you look at some of the competitive NAND out there, either in terms of die size or cost per gig versus some of the peers?

So that's a very complicated question. I mean we can go into it in detail offline. We obviously do tons of work, and I appreciate your question that it's a multifaceted issue. It's die size, it's memory hole density, it's all kinds of very complicated thing goes into producing a NAND product. Look, we think the product compares extremely favorable. We think it leads the market. Again, for the last -- looking back many years, we have been able to produce bits at one third less CapEx than the industry average, and we expect BiCS 8 to continue that leadership in the market. So we feel very, very good about the product, about its performance. Again, when you build, this is like kind of one of the magic of wafer bonding. You can build the CMOS separately from the NAND stack and then the CMOS is kind of pristine. So the interfaces are really, really fast. So there's lots of good things about that architecture that leads to a really, really market-leading product, and we feel good about it. And we've got that all ready to go when the market the market conditions will support that level of investment.

Our next question comes from Mehdi Hosseini from Susquehanna. Please go ahead with your question.

Yes. Most of the good questions have been asked. But David, I just have a longer-term question, and I think it will help many investors let's say, prices were to go sideways in '25, and you're just focusing on that 15% cost down and higher mix of higher-value SSD products. Can you help us understand how your flash margins would evolve from here? And then I'm not trying to ask you for pricing. But I'm just wondering how we could gauge your execution first, on the product mix and be on the cost down and how they both would manifest into higher margins.

Yes. Then let me first start with -- I'll take a stab at the answer, Mehdi. So look, our target model hasn't changed. We're still targeting through cycle for the flush business to be 35%, gross margin to be between 35% to 37%. And so that means, obviously, as -- from where we are today, we still have some ways to go to get to that through cycle margin. And the way we achieve these gross margins is what we've been talking about on this call. We focus on the product portfolio, the bit placement as well as on the cost side, which we still anticipate a similar type of ranges in terms of cost downs.

Okay. That's reasonable. Let me just move on to the second question. And this is something I always ask, focusing on HDD. Is there any update how you see exabyte shipment evolving like over the next couple of years? Is the target now 25% to 30% or less or more?

We're not -- we're still in the 20% to 25% camp, maybe around 25%. That's -- we're clearly in a cyclical recovery here, getting back to that kind of through-cycle number. I think the kind of the question inside your question is how much does AI add on to that. And I think it's still a little early to tell. We definitely see -- as I talked about earlier, we see the value of data going up, you want to store more data to train more models. Those models are going to turn out more data. So we think that the bias is higher. I'm not in a position yet to call exactly how much it changes the slope of that line. So that's something we're going to stay very focused on as we go forward here over the next several quarters, stay close to our customers as these models get deployed and AI gets more broadly deployed and adopted so that we can dial in what we expect that impact to be on HDD storage demand. But we feel good that it's -- and we've got that secular tailwind to the business that will emerge.

Our next question comes from Steven Fox from Fox Advisors. Please go ahead with your question.

Hi. Two quick ones for me. First of all, on the HDD side, your large competitors talked about having to sort of support the supply chain going forward. I was wondering what -- how you look at that option or need to do that? And then secondly, since cash flows turned positive again, I was wondering if you could sort of give us a little bit of help on how to think cash flow tracks maybe versus net income or EBITDA over the next few quarters? Thanks.

I'll just say something about supply chain. Look, we stay -- we've stayed very close to our suppliers throughout the entire downturn and stay very close to them as we're planning the business going forward. So we think we always support our supply chain and Irwin Tan, who leads operations is based in Singapore, a lot of our suppliers are there, and he personally can stay very, very close to them. So we've stayed we've been very close and have supported our supply chain throughout this entire downturn. And now as things are getting better, that's a good situation for all of us. You want to talk about the cash flow?

Yes, let me take that. So on the cash flow, yes, thanks. Obviously, we returned to free cash flow positive in Q3. And as the revenue and the business continues to recover, we're completely focused on profitability and cash flow generation. So we should expect that to improve from here.

Our next question comes from Ananda Baruah from Loop Capital. Please go ahead with your question.

Yes, thanks guys for taking the question. Just one for me. David, really, I think, piggybacking off the part of Mehdi's question. So just a TAM question on both sides of the business, HDD and Flash, is really the spirit of it that you see some near-term demand from AI coming and TBD on the impact to the TAM over time and also TBD on impact to the normalized growth rate off of whatever the new TAM looks like. And that's really the question. And TBD is the financing, but I just wanted to make sure we get all of your current opinions there. Thanks.

I think that's a fair way to say it. I think it's coming into focus as to where it's going to show up on both sides of the business, but it's -- to your point, we're not ready to call what it does to the TAM, besides, we believe, it's a tailwind to both TAMs. So clearly, on the NAND business, there's very specific use cases on model training that are coming up substantially. I mean, obviously, you're seeing that across the whole technology landscape. And maybe that's a little bit easier to see we're actually seeing demand for those kind of products in the second half. And for HDD, we see it as all the data that's going to feed that process is going to sit on HDDs. And obviously, once those models get trained, they're going to turn out data that's 85% plus of that is going to be stored on HDD. So we see a very, very good setup, but we're staying close to our customers in these markets. It's still a little bit early to actually put a number on it of what it does to the growth rate or the TAM size.

And our next question comes from Tristan Gerra from Baird. Please go ahead with your question.

Hi, good afternoon. A quick follow-up on this, which is how critical is it to have U.S. manufacturing for SSDs in relation to AI? And how do you look at partnership with hyperscalers as opposed to more kind of a general purpose business.

You mean U.S. manufacturing of the NAND itself or the SSD, which -- well, our NAND is manufactured in Japan. So we don't see that as -- we feel really good about our manufacturing footprint, by the way. So the JV, we haven't talked at all on this call about the JV, but that puts us in a great position from a scale perspective and gives us -- is the big underlying part of that low-cost lowest-cost bids, low capital efficiency and great product road map because we -- all of that is done in tandem with Kioxia, and so we're able to invest as the largest supplier in the market, which is a great position to be in. But we haven't -- the way our footprint is set up for a manufacturing point of view, we haven't seen anything that impairs us ability to serve the entire market. And as far as partnership with hyperscalers, like, look, we stay very close to the hyperscalers. Obviously, they're big customers of ours. We're big suppliers of theirs on both sides of the business. So we're very, very close to them and staying close to what are different use cases, how do they want the products built especially in the enterprise SSD market, every -- there's not just one enterprise SSD. Everybody uses slightly different interfaces and there's different ways, their architecture of their data centers are built. So we stay close to them to make sure we build the right product for what we're -- what the markets we want to serve.

And at this time, we'll conclude today's question-and-answer session. I'd like to turn the floor back over to David for any closing remarks.

All right. Thanks, everyone. We appreciate all of the questions, and we look forward to talking to everybody throughout the quarter. Thanks again.

This concludes today's conference call. We thank you for joining. You may now disconnect your lines.