Western Digital Corporation (WDC) 2024 Q4 Earnings Call Summary

Optimistic Highlights

• Strong Fiscal Performance: Western Digital reported a robust fiscal fourth quarter with revenue of $3.8 billion, a non-GAAP gross margin of 36.3%, and non-GAAP earnings per share of $1.44. The fiscal year 2024 revenue totaled $13 billion.
• Strategic Focus and Market Positioning: The company has strategically aligned its portfolio with growth opportunities across various end markets, improving through-cycle profitability for both Flash and HDD segments.
• AI Data Cycle Opportunities: Western Digital is well-positioned to capitalize on the growing demand for storage driven by the AI Data Cycle, with expectations for Flash to benefit from AI training and inference, and HDD to gain at both the input and output stages of AI models.
• Product Innovation and Leadership: Introduction of industry-leading products like the high-performance PCIe Gen 5 SSD and the world's highest capacity ePMR UltraSMR 32-terabyte hard drive, showcasing the company's commitment to innovation.
• Separation Plans Progress: Positive progress towards the separation of the company's Flash and HDD businesses by the end of the calendar year, with anticipation of incurring separation dis-synergy costs in the second half of the calendar year.

Pessimistic Highlights

• Market Volatility and Transactional Market Softness: Despite strategic focus, the company acknowledges ongoing market volatility and softness in more transactional markets such as consumer and channel.
• Separation Dis-synergy Costs: The upcoming separation of the Flash and HDD businesses is expected to incur dis-synergy costs, impacting financials in the short term.

Company Outlook

• Revenue and Gross Margin Improvement: For the fiscal first quarter, revenue is expected to be in the range of $4 billion to $4.2 billion with gross margin between 37% and 39%. This reflects continued improvements in profitability across both Flash and HDD businesses.
• Strategic Capital Discipline: The company emphasizes maintaining focus on cost and capital discipline, with cash capital expenditures expected to align with the fiscal fourth quarter, around 2% of revenue.

Q & A Highlights

• HDD Gross Margins and Supply Contracts (C.J. Muse, Cantor Fitzgerald)

  Western Digital has seen impressive HDD gross margins and expects further growth driven by strong nearline demand and favorable pricing. The company has moved to a 52-week lead time for HDD orders, improving visibility and planning.

• NAND Market Dynamics (Joe Moore, Morgan Stanley)

  Despite weaker volume, NAND pricing remains good, especially in enterprise SSD. The company sees demand outstripping supply through the second half of the year and into the next calendar year.

• Enterprise SSD Design Wins and PCIe Gen 5 SSD (Karl Ackerman, BNP Paribas)

  The PCIe Gen 5 Enterprise SSD and the 64 terabyte SSD are targeted at different segments of the AI Data Cycle, with significant interest from customers building AI training infrastructure.

• HDD Market Share and Capacity (Unidentified Analyst, TD Cowen)

  Western Digital attributes its HDD market share gains to its product quality and TCO advantages, not competitors' technology transitions. The company is evaluating capacity additions based on customer commitments and market demand.

• Balance Sheet and Free Cash Flow Prioritization (Grant Joslin, UBS)

  Western Digital focuses on strengthening the balance sheet and will detail the appropriate leverage for each segment post-separation during upcoming Capital Market Days.

• NAND ASP Trajectory and Inventory Strategy (Aaron Rakers, Wells Fargo)

  The company expects NAND ASPs to be slightly up in the low single-digit percentage range for the September quarter, with inventory builds typical for preparing for the second half's consumer-oriented shipments.

• Dis-synergy Costs Post-Separation (Toshiya Hari, Goldman Sachs)

  The dis-synergy costs of $35 million to $45 million for the December quarter are expected to be a steady state until and going forward post-separation.

• HDD and NAND Cost Declines and Industry Structure (Asiya Merchant, Citigroup)

  Western Digital continues to drive cost declines in both HDD and NAND through technology innovation, with HDD costs going down by high single digits annually and NAND costs by about 15% for the year.