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    WESTERN DIGITAL (WDC)

    Q2 2024 Earnings Summary

    Reported on Jan 10, 2025 (After Market Close)
    Pre-Earnings Price$45.59Last close (Jan 25, 2024)
    Post-Earnings Price$44.48Open (Jan 26, 2024)
    Price Change
    $-1.11(-2.43%)
    • Western Digital expects to turn free cash flow positive in the second half of fiscal year 2024, reflecting improving financial performance.
    • The company anticipates the NAND market to be undersupplied for quite some time, supporting higher pricing and profitability in their Flash business.
    • Western Digital is well-positioned to benefit from the growth in demand driven by generative AI, especially in edge devices, due to their strong portfolio in consumer, client SSD, gaming, and PC OEM markets.
    • Declining flash bit shipments: Western Digital expects flash volume to decrease further, with bits down in "low double digits" for the March quarter, which could negatively impact revenue growth despite higher prices.
    • Negative free cash flow persists: The company continues to experience cash flow challenges, reporting a cash outflow during the quarter and not expecting to turn free cash flow positive until the second half of fiscal year 2024.
    • Uncertainty in China's demand sustainability: There are concerns about the sustainability of the doubled demand from China, given that the Chinese economy hasn't been robust, which may affect future revenues.
    1. NAND Pricing Sustainability
      Q: Is NAND pricing sustainability expected into the back half?
      A: We see NAND undersupplied for quite some time, and although pricing is improving, we have a long way to go before reaching profitability levels where investment will come back. We need clear visibility into through-cycle profitability before adding capacity. We expect pricing increases into the next quarter but are managing supply and demand carefully, with bits down sequentially .

    2. Gross Margin Outlook
      Q: When will Flash and HDD gross margins reach 30%?
      A: In HDD, we're very close to a 30% gross margin, reflecting continuous improvement, and we should achieve it soon . In Flash, by optimizing the product mix to drive ASP up and delivering mid-teens percentage cost reductions for the fiscal year, we anticipate reaching 30% in the next few quarters as pricing continues to improve .

    3. HAMR Technology Transition
      Q: How are customers reacting to competitors' HAMR shipments?
      A: Customers seek capacity at the right TCO and reliability, not specific technologies. Our ePMR and UltraSMR technologies provide high capacity and the best TCO at scale. HAMR doesn't make economic sense until we reach 4 terabytes per platter due to added costs. We'll transition to HAMR when it's economically viable, and customers are very happy with our roadmap .

    4. Impact of Generative AI on NAND Demand
      Q: When will NAND demand from Gen AI at the edge increase?
      A: We're starting to see increased NAND requirements in future product specs, particularly as we enter PC refresh cycles. While it's early, we're optimistic that over the next couple of years, as generative AI architectures are deployed and adopted, NAND demand at the edge will inflect higher .

    5. Free Cash Flow Positive Timing
      Q: When do you expect to be free cash flow positive?
      A: Turning free cash flow positive is a top priority. We expect to achieve it in the second half of fiscal '24, either this quarter or the next. We don't anticipate needing to draw on our revolver at this point .

    6. Enterprise SSD Recovery
      Q: How do you envision enterprise SSD market recovery?
      A: Enterprise SSD is an emerging part of our portfolio. We qualified at cloud titans before the downturn, but enterprise SSD has been the most depressed part of the NAND market. As demand returns, we'll mix into it based on pricing versus other options for our bits. It's currently trailing the recovery in enterprise HDDs .

    7. China Demand Surge
      Q: Why did China demand double this quarter?
      A: The increase wasn't due to the smart video market but was driven by China's hyperscalers coming back and showing better demand .

    8. NAND ASPs Below Peers
      Q: Why were your NAND ASPs below peers in December?
      A: Price changes depend on starting points; we began from a better gross margin position than others. Mix variations based on product destinations and quarter dynamics also affect ASPs. Despite this, our profitability leads the industry .

    9. Underutilization Impact
      Q: How does underutilization affect achieving 30% HDD margins?
      A: Adjusting for underutilization charges, we're almost at a 30% HDD gross margin. We expect another quarter of underutilization, but we've taken significant cost out of our structure, allowing us to reach 30% margins at lower revenue levels than before .

    10. OpEx Expectations
      Q: How will OpEx trend into June quarter and beyond?
      A: For the June quarter, OpEx will be more or less in line. As profitability improves, expect a gradual increase, but we remain focused on not increasing OpEx faster than revenue growth. We're still over 20% lower than at the beginning of the downturn .

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