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    Western Digital Corp (WDC)

    Business Description

    Western Digital Corporation (WDC) is a leading developer, manufacturer, and provider of data storage devices and solutions, utilizing both hard disk drives (HDD) and NAND flash technologies. The company serves three primary end markets: Cloud, Client, and Consumer, offering products tailored for public or private cloud environments, original equipment manufacturers, and retail consumers . WDC operates under two main reportable segments, Flash and HDD, which significantly contribute to its overall financial performance . The company's revenue is geographically diversified, with major contributions from the United States, China, and other regions .

    1. Flash - Develops and provides NAND flash-based storage solutions for various applications, including personal computers, mobile devices, gaming, and automotive industries.
    2. HDD - Manufactures and supplies hard disk drive storage solutions, catering to enterprise customers and cloud environments, as well as OEMs and channel customers.

    Q1 2025 Summary

    Initial Price$75.77July 2, 2024
    Final Price$66.52October 2, 2024
    Price Change$-9.25
    % Change-12.21%

    What went well

    • Record HDD gross margins of 38.1%, adding over 15 percentage points in the last four quarters, driven by strong adoption of technology and products like new 11-platter drives.
    • Rapid growth in enterprise SSD business, with mix expected to exceed 15% of overall portfolio shipments in fiscal year 2025, significantly faster than previously anticipated, fueled by progress in qualifications with hyperscalers and OEMs.
    • Improved supply-demand management and customer relationships, working with customers on a 2- to 6-quarter agreement cycle, providing better visibility into future demand and supporting sustainable profitable growth.

    What went wrong

    • Risk of Demand Overestimation Due to Lack of Take-or-Pay Agreements: Western Digital is not securing take-or-pay agreements with customers, which may lead to risks of customers placing shadow orders without commitment. This could result in overestimating demand and possible overproduction, impacting financial performance.
    • Limited Capacity Expansion May Constrain Growth: The company is cautious about expanding manufacturing capacity without strong customer signals over the next 4 to 6 quarters. This limited capacity expansion could hinder its ability to meet future demand and capitalize on growth opportunities.
    • Uncertainty in Flash CapEx and Investment Strategy: Western Digital did not provide clear guidance on Flash capital expenditures for the next fiscal year, mentioning that CapEx was very low last fiscal year and expects it to be higher, but without quantitative details. This lack of clarity may raise concerns about their investment strategy in Flash memory.

    Q&A Summary

    1. Company Separation Timing and Commitment
      Q: When will the company separation occur? Any impediments?
      A: Management plans to complete the company separation around the time of the December quarter earnings call. They are currently in a soft spin phase, operating separate systems behind the scenes to build confidence for a full spin. The Form 10 will be made public in the next couple of months to begin financing activities. Despite challenges, they are committed to executing the separation expeditiously, believing it is the right decision for shareholders.

    2. HDD Capacity Constraints and Expansion Plans
      Q: Do you foresee HDD capacity constraints? How quickly can you add capacity?
      A: Management believes they have adequate manufacturing capacity to meet demand, focusing on profitability and maintaining supply-demand balance. They do not see the need to expand capacity unless they receive strong signals from customers over the next 4 to 6 quarters. The strategy is to increase exabytes shipped through innovation and higher density per unit, rather than increasing units produced.

    3. Enterprise SSD Growth and NVIDIA Qualification
      Q: Can you discuss enterprise SSD growth and NVIDIA qualification?
      A: The enterprise SSD mix is expected to be 15% to 20% of total Flash revenue, up from around 10% previously. Their compute-focused PCIe Gen 5 product was qualified by NVIDIA in their reference architecture, enhancing confidence in portfolio growth and aligning with the AI data cycle. The number of qualifications doubled in the last quarter.

    4. UltraSMR Technology Adoption by Hyperscalers
      Q: How is UltraSMR technology adoption progressing?
      A: The third hyperscaler has officially qualified UltraSMR technology, and management expects a rapid ramp over the next several quarters. Customers prefer deploying the densest drives possible, like the new 32-terabyte UltraSMR drive, which can be qualified quickly due to familiar technology. This adoption increases visibility and predictability in the business.

    5. Margin Improvement and Pricing Dynamics in HDD Business
      Q: What are the margin and pricing trends in the HDD business?
      A: HDD margins improved to 38.1%, adding over 15 points in the last four quarters. The launch of new high-capacity drives is expected to enhance pricing and margins. A slight like-for-like pricing increase was observed, driven by delivering better products that reduce customers' TCO.

    6. Impact of Dissynergies on Operating Expenses
      Q: What dissynergies are expected due to the company split?
      A: The December quarter operating expenses include approximately $30 million in dissynergies, split equally between the two businesses. At steady state, dissynergies are anticipated to be around $40 million, again divided equally. These costs are included in the guidance, with the $705 million midpoint of OpEx accounting for them.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDQ2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025
    Flash1,3776,0631,5561,6651,7051,7616,6871,884
    HDD1,2956,2551,1941,3671,7522,0036,3162,211
    Cloud-5,2528721,0711,5531,8825,378-
    Client-4,3281,1471,1221,1741,2044,647-
    Consumer-2,7387318397306782,978-
    Client Devices--------
    Data Center Devices & Solutions--------
    Client Solutions--------
    - Enterprise SSDs--------
    Total Revenue2,67212,3182,7503,0323,4573,76413,0034,095
    Revenue by Geography - in Millions of USDQ2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025
    Asia--1,5511,6991,7401,9126,9021,837
    - China-2,773----3,037-
    - Hong Kong-1,829----2,375-
    - Rest of Asia-1,444----1,490-
    Americas--6628041,1541,3513,9711,690
    - United States-3,810----3,585-
    Europe, Middle East and Africa4352,1005375295635012,130568
    Other-362----386-
    Total Revenue2,67212,3182,7503,0323,4573,76413,0034,095
    KPIs - Metric (Exabytes)Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025
    HDD59-41267----
    Flash59-88.4-----
    Cloud Q2 2024---67----

    Executive Team

    NamePositionStart DateShort Bio
    David V. GoeckelerChief Executive OfficerMarch 2020David V. Goeckeler has over 30 years of experience in the technology industry. Before joining Western Digital, he held various senior management positions at Cisco Systems, Inc. .
    Wissam G. JabreExecutive Vice President and Chief Financial OfficerFebruary 2022Wissam G. Jabre was previously the senior vice president and chief financial officer of Dialog Semiconductor, PLC, and held finance roles at Advanced Micro Devices, Inc., Freescale Semiconductor, Inc., and others .
    Robert W. SoderberyExecutive Vice President and General Manager, Flash BusinessSeptember 2020Robert W. Soderbery was the president and board member of UpLift, Inc., and held senior leadership roles at Cisco Systems and Symantec Corporation. He also serves on the board of directors of Rockwell Automation, Inc. .

    Questions to Ask Management

    1. Given the increasing demand for HDD capacity, especially from cloud and AI applications, how is Western Digital addressing potential capacity constraints, and what specific measures are you taking to expand your manufacturing capacity for heads and media to meet future demand?

    2. With the shift towards longer-term agreements in your HDD business, how are you managing the risks of customers placing shadow orders or overbooking, and are there plans to implement take-or-pay agreements to ensure demand visibility and mitigate supply-demand imbalances?

    3. As you progress with the separation of your Flash and HDD businesses, can you elaborate on the operational challenges and financial implications, including the anticipated increase in operating expenses due to synergy costs, and how this separation will enhance shareholder value in the long term?

    4. Despite achieving record HDD gross margins and the highest revenue levels in 11 quarters, HDD pricing remained relatively stable quarter-over-quarter; can you explain the factors influencing pricing dynamics and how sustainable is the current margin improvement amidst potential market volatility and competition?

    5. In your Flash business, you've highlighted ongoing weakness in consumer and client segments due to PC OEMs pushing out refresh cycles; what strategies are you implementing to mitigate these headwinds and drive growth in these challenged end markets?

    Past Guidance

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: Q2 2025
    • Guidance:
      • Revenue: $4.2 billion to $4.4 billion .
      • Gross Margin: 37% to 39% .
      • Operating Expenses: $695 million to $715 million, including synergy costs of $25 million to $35 million .
      • Interest and Other Expenses: Approximately $110 million .
      • Tax Rate: 15% to 17% .
      • Earnings Per Share (EPS): $1.75 to $2.05 based on approximately 357 million shares outstanding .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: Q1 2025
    • Guidance:
      • Revenue: $4 billion to $4.2 billion .
      • Gross Margin: 37% to 39% .
      • Operating Expenses: $695 million to $715 million, including dis-synergy costs of $15 million to $25 million .
      • Interest and Expenses: Approximately $110 million .
      • Tax Rate: 15% to 17% .
      • Earnings Per Share (EPS): $1.55 to $1.85 based on approximately 360 million shares outstanding .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: Q4 2024
    • Guidance:
      • Revenue: $3.6 billion to $3.8 billion .
      • Gross Margin: 32% to 34% .
      • Operating Expenses: $670 million to $690 million .
      • Interest and Other Expenses: Approximately $105 million .
      • Income Tax Expense: $30 million to $40 million for the fiscal fourth quarter and $130 million to $140 million for fiscal year 2024 .
      • Earnings Per Share (EPS): $1.05, plus or minus $0.15, based on approximately 342 million shares outstanding .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: Q3 2024
    • Guidance:
      • Revenue: $3.2 billion to $3.4 billion .
      • Gross Margin: 22% to 24%, including HDD underutilization charges of $30 million to $40 million .
      • Operating Expenses: $600 million to $620 million, with the increase driven by the reinstatement of certain incentive compensation programs .
      • Interest and Other Expenses: Approximately $95 million .
      • Income Tax Expenses: $20 million to $30 million for the fiscal third quarter and $80 million to $120 million for fiscal year 2024 .
      • Preferred Dividend: $15 million .
      • Earnings Per Share (EPS): $0.05, plus or minus $0.15, based on approximately 330 million shares outstanding .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Seagate Technology Holdings plc - Competitor in the HDD market .
    • Toshiba Electronic Devices & Storage Corporation - Competitor in the HDD market .
    • Kioxia - Competitor in the Flash market and strategic partner in Flash Ventures .
    • Micron Technology, Inc. - Competitor in the Flash market .
    • Samsung Electronics Co., Ltd. - Competitor in the Flash market .
    • SK Hynix, Inc. - Competitor in the Flash market .
    • Yangtze Memory Technologies Co., Ltd. - Competitor in the Flash market .