Western Digital Corporation (NASDAQ:WDC) Q4 2025 Earnings Call Transcript

Western Digital Corporation (NASDAQ:WDC) Q4 2025 Earnings Call Transcript July 30, 2025

Western Digital Corporation beats earnings expectations. Reported EPS is $1.66, expectations were $1.48.

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital’s Fourth Quarter Fiscal 2025 Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Ambrish Srivastava, Vice President, Investor Relations. You may begin.

Ambrish Srivastava: Thank you, and good afternoon, everyone. Joining me today are Irving Tan, Western Digital’s Chief Executive Officer; and Kris Sennesael, Western Digital’s Chief Financial Officer. Before we begin, please note that today’s discussion will contain forward-looking statements based on management’s current assumptions and expectations, which are subject to various risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, ongoing market trends and our future financial results. We assume no obligation to update these statements. Please refer to our most recent annual report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations.

In our prepared remarks, our comments will be related to non-GAAP results on a continuing operations basis, unless stated otherwise. 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 at investor.wdc.com. Lastly, I want to note that when we refer to we, us, our, or similar terms, we are referring only to Western Digital as a company and not speaking on behalf of the industry. With that, I will now turn the call over to Irving for introductory remarks. Irving?

Tiang Yew Tan: Thanks, Ambrish. Good afternoon, everyone, and thank you for joining us today. Let me first begin by welcoming and introducing Kris Sennesael, our new Chief Financial Officer. Kris brings extensive experience and a strong track record as a public company CFO. His leadership will be instrumental as we sharpen our focus on operational execution, accelerate our capital return program and continue to create value for our shareholders. We are excited to have Kris on board. Let me now walk you through our business update. AI is ushering in the new era of data growth by fundamentally transforming how data is created, collected, processed and stored and more importantly, value. Looking beyond large language models, which have been a key driver of storage needs, the emergence of Agentic AI at scale in multiple industries is creating an increasing need to store unstructured data.

Agents customized with the main specific knowledge will create a significant amount of distinct use cases, and generate data at an unprecedented pace. To set a few examples; applications leveraging Agentic AI range from business tools like enterprise chatbots and court development assistance, all the way to agents assisting in engineering, design and development. Within our own engineering organization, we are already realizing tangible benefits of Agentic AI to help accelerate our product development cycles. These trends are still in their early stages but are expanding rapidly across industries globally. As data becomes more valuable and central to AI-driven innovation, the need to store and retain it at scale grows in parallel. And no storage technology matches the cost efficiency and reliability of HDDs, which remain the foundation of the world’s data infrastructure, delivering unmatched value for mass storage in an AI-driven future.

Against this backdrop, demand for our products continues to strengthen. We remain disciplined in managing capacity and are addressing long-term market demand through high-quality, reliable and larger capacity products. Shipments of our latest generation ePMR drives with capacity up to 26 terabytes CMR and 32 terabyte UltraSMR more than doubled quarter-over-quarter, exceeding 1.7 million units in the June quarter. This marks one of the shortest qualification and ramp cycles in our history. The reliability, scalability and TCO value of our ePMR and UltraSMR technologies that delivers the fastest time to value for our customers is core to our continued success in the data center market. We aim to extend ePMR’s strong track record of high yield, reliability and a scalable performance into our next generation of HAMR drives.

The feedback from tests at 2 of our hyperscale customers continues to be encouraging. I am pleased to note that we are ahead of our internal milestones with steady progress in aero density improvement and continue to focus on increasing long-term reliability and manufacturing yield of our HAMR products. Next, we will transition from testing to qualification stage with these customers. Staying well on track for a ramp in the first half of calendar year 2027. Meanwhile, our next generation of ePMR drives will complete qualification in the first half of calendar year 2026. These drives will continue to deliver strong TCO along with the hallmark reliability and predictability, paving the way for a smooth and economically sound transition to HAMR.

In addition, the rapid rise of AI is also accelerating our platforms business. Our platform’s technology enables us to deliver dense systems that extract the full performance and capacity of our drive. This business is building traction with infrastructure providers and is well positioned to support the growing number of native AI companies that don’t have their own storage infrastructure teams. Let me now turn to our quarterly results and capital allocation updates. For the fiscal fourth quarter, Western Digital delivered revenue of $2.6 billion, non-GAAP gross margin of 41.3% and non-GAAP earnings per share of $1.66. Free cash flow for the quarter was $675 million. During the June quarter, we lowered our debt by $2.6 billion via a combination of using cash on hand and a debt-for- equity exchange of a portion of our state incentives.

As a result, we have strengthened our balance sheet and achieved a net leverage target range of 1 to 1.5x. We communicated at our Investor Day in February in less than 2 quarters. Keeping with our commitment to returning cash to shareholders, we initiated a quarterly cash dividend program and the Board authorized a $2 billion share repurchase program. In our fiscal fourth quarter, we purchased nearly $150 million worth of shares. Looking ahead, while the broader environment continues to be marked with uncertainty related to tariffs, we are seeing strong demand for our products driven by AI and related tailwinds in our business. Our visibility into our customers’ plans continue to improve and we currently have firm POs or LTAs with all of our top 5 hyperscale customers covering our entire fiscal year 2026.

This close collaboration with our customers enables us to plan more effectively and address their growing needs for storage. For the fiscal first quarter of 2026, we expect continued revenue growth driven by data center demand and improved profitability led by adoption of our high-capacity drives. Let me now turn the call over to Kris, who will discuss our fiscal fourth quarter results and Q1 fiscal year ’26 guidance in more detail.

Kris Sennesael: Thank you, Irving, and good afternoon, everyone. I’m honored to be joining you today for my first earnings call as the Chief Financial Officer of Western Digital. Over the past several weeks, I had the opportunity to perform a deep dive into our business and met with many of our valued employees across the company. I also had several meaningful engagements with customers, suppliers and partners and the investor community. It’s been a tremendously energizing experience, providing great insight into our strategic, financial and operational priorities. It’s clear to me that Western Digital is now operating as a strategically focused hard disk drive company. The company is leveraging its technology leadership position, operational excellence and deep customer engagements to provide innovative solutions to meet the evolving needs of its customers.

This provides a strong foundation for growth, profitability and cash flow generation that creates long- term shareholder value. During the fourth quarter of fiscal 2025, Western Digital delivered very strong financial results. Revenue was $2.6 billion, up 30% year-over-year, and earnings per share was $1.66. Revenue and EPS were above the high end of the guidance range. We delivered 190 exabytes to our customers, up 32% year-over-year driven by strong nearline shipments and the ramp of our 26 terabytes CMR and 32- terabyte UltraSMR drives. Cloud represented 90% of total revenue at $2.3 billion, up 36% year-over-year, driven by strong demand for our higher capacity in nearline product portfolio. Client represented 5% of total revenue at $140 million, up 2% year-over-year.

And consumer also represented 5% of revenue at $136 million, down 12% year-over-year. Gross margin for the fiscal fourth quarter was 41.3%. Gross margin improved 610 basis points year-over-year on a continuing operating basis, and was above our guidance range. The improved gross margin performance reflects continued mix shift towards higher capacity drives and tight cost control in our manufacturing sites and throughout the supply chain. Operating expenses were $345 million, slightly above guidance due to higher variable compensation on stronger-than-expected results. Operating income was $732 million, translating into an operating margin of 28.1%. Interest and other expenses were $52 million, a substantial reduction from the prior quarter due to the repayment of $2.6 billion of debt during the quarter.

Taking into account an effective tax rate of 9.3% and a diluted share count of 362 million shares, EPS was $1.66, up 22% sequentially. Turning to the balance sheet. At the end of our fiscal fourth quarter, cash and cash equivalents were $2.1 billion, and the total liquidity was $3.4 billion, including the undrawn revolver capacity. During the quarter, we exchanged approximately 21 million shares of SanDisk for debt. As a result, our Term Loan A reduced by $800 million, and we still own 7.5 million shares of SanDisk. In addition, we redeemed $1.8 billion of the senior unsecured notes, resulting in gross debt outstanding of $4.7 billion at the end of fiscal 2025. We strengthened our balance sheet and achieved our target net leverage ratio of 1 to 1.5x as outlined at our Investor Day.

Operating cash flow for the fiscal fourth quarter was $746 million, and capital expenditures were $71 million, resulting in strong free cash flow generation of $675 million for the quarter. Backed by strong cash flow generation, a robust balance sheet and confidence in the fundamentals of our business, the Board authorized up to $2 billion of share repurchases. During the quarter, we repurchased approximately 2.8 million shares for a total of $149 million. In addition, as announced during the last earnings call, the Board initiated a cash dividend of $0.10 per share resulting in $36 million of dividend payments during the quarter. The Board also declared a quarterly cash dividend of $0.10 per share of the company’s common stock payable on September 18, 2025, to shareholders of record as of September 4, 2025.

I will now turn to the outlook for the first quarter of fiscal 2026. This guidance includes our current estimate of all anticipated or known tariff-related impacts on our business in this period. We anticipate revenue to be $2.7 billion, plus/minus $100 million. At the midpoint, this reflects a growth of approximately 22% year-over-year. Gross margin is expected to be between 41% and 42%. We expect operating expenses to increase on a sequential basis to a range of $370 million to $380 million, including an additional week of expenses as Q1 will be a 14-week quarter. Interest and other expenses are anticipated to be approximately $50 million. The tax rate is expected to be between 16% and 19%. As a result, we expect EPS to be $1.54 plus/minus $0.15 based on a non-GAAP diluted share count of approximately 363 million shares.

In closing, Western Digital is well positioned to succeed in the AI-driven data economy. We remain committed to meeting our customers’ growing storage needs while using our cash flow generation and strong balance sheet to deliver long-term value for our shareholders. With that, I will now turn the call back to Irving.

Tiang Yew Tan: Thank you, Kris. Western Digital’s strong results and positive outlook this quarter reflects the ongoing successful execution of our strategy and the continued trust our customers place in the performance reliability and TCO advantages of our products. This combination of customer trust, strategic focus and disciplined execution is driving our strong financial results. With that, let’s now begin with the Q&A. Over to you, Ambrish.

Ambrish Srivastava: Thanks, Irving. Operator, you can now open the line to questions, please. To ensure that we hear from as many analysts as possible, please ask 1 question at a time. After we respond, we will give you an opportunity to ask 1 follow-up question. Operator?

Q&A Session

Operator: [Operator Instructions] The first question comes from Erik Woodring with Morgan Stanley.

Erik William Richard Woodring: And congrats on the results tonight. Kris, I wanted to kind of better understand the gross margin guidance for the September quarter. You’re calling for, I believe, 20 basis points of sequential gross margin expansion at the midpoint. Can you maybe just help us unpack maybe why we’re seeing that sequential gross margin expansion slow into the September quarter, if there are any one-timers or headwinds that are unusual in the quarter to call out? And I’ll just ask the follow-up because it’s related, which is beyond September, I realize you have a 38% gross margin in your 3-year financial model. As we progress through this up cycle though, how should we be thinking about the incremental margins in this business and maybe help us stream the dream of what’s possible during this up cycle?

Kris Sennesael: Yes. Thanks, Erik, for the question. And so first of all, I’m very pleased with the progress that we are making with our gross margin. As you probably recall, at the February Investor Day, we had — we announced a business model with a 38% gross margin. And so last quarter, even before I joined the company, I was very pleased to see that the company, for the first time had gross margins with a 4 handle in the 40% range in last quarter in Q4 of fiscal ’25. I’m very pleased with the fact that we delivered 41.3% gross margin. So really good progress for many quarters in a row. As you know, in gross margins, there’s multiple elements that go into it. There is pricing, the risk mix, the risk cost. And in each of those fronts, I think the company is executing really well.

Pricing is very stable environment. The mix is shifting in the right direction to higher capacity drives that is accretive to gross margins and the operational team is executing really well, driving down cost reductions in the factories as well throughout the supply chain. And so I do believe there is further gross margin progression. We guided now Q1 of fiscal ’26 to 41% to 42%. I’m confident that the team will execute well and continue to focus on further gross margin improvements over time.

Operator: [Operator Instructions] The next question comes from Aaron Rakers with Wells Fargo.

Aaron Christopher Rakers: I do have 2 and I’ll wait to ask a follow-up. I guess the first question, Kris, congrats on the results as well. But you’ve taken the debt down, you’re well within your targeted range of 1 to 1.5 on a leverage ratio basis, strong free cash flow generation, you’ve got $2.1 billion of cash on the balance sheet. I’m curious as you start to think about share repurchase activity going forward, how should we as investors think about that? Or how do you think about excess cash generation or the right level of cash on the balance sheet that you’ll operate the business at or rather the capacity for even stepping further on share repurchase going forward?

Kris Sennesael: Yes, Aaron, that’s a great question. And here again, I’m really pleased with what I’ve seen in the company as well in terms of capital, capital structure and capital allocation. And just to summarize it as well, there is very strong free cash flow. Just last quarter, the first quarter as the stand-alone hardest drive company, we generated $675 million of free cash flow which was a 26% free cash flow margin. Now not each and every quarter will be as strong as last quarter, but the business model is really a strong free cash flow business model. In addition to that, the company has done a great job at strengthening the balance sheet at the time of the separation as well as last quarter where we retired $2.6 billion of debt now getting to a net debt of $2.6 billion, which is on or about onetime LTM EBITDA.

So really good job there. And so there’s no hesitation from the Board, to the management team to continue to return cash back to the shareholders through a combination of our dividend program and the share repurchase program. The dividend program, we started with $0.10 per quarter. I think there is room to grow that dividend over time. We’re going to be very thoughtful about that, but there was also no hesitation to switch on the buyback. The day it got approved. You saw we did $150 million. I think over time, as the cash flow generation continues to grow, we can do more, and there will be no hesitation to execute the share repurchase program.

Ambrish Srivastava: Do you have a follow-up, Erik? Aaron, sorry.

Aaron Christopher Rakers: Yes, I do, Ambrish. One of the metrics that you guys have historically given and helps kind of bridge the hard disk drive versus the non-hard disk drive business was the ASP. I didn’t see that in tonight’s release. So I’m curious if that’s something that you could talk to? Or I guess, maybe put another way, how do we think about the non-HDD revenue in this most recent quarter?

Tiang Yew Tan: Yes. Aaron, thanks for the question. This is Irving. Obviously, ASP per terabyte is obviously a function of mix by and large. But I would say for last quarter, ASP per terabyte was down low single digits.

Operator: The next question comes from Wamsi Mohan with Bank of America.

Wamsi Mohan: And congrats on your solid results as well. Could you maybe help us think a little bit longer term here? When you look at sort of the revenue contribution, 90% coming from cloud, does it really mean that the seasonality in the business is going to be materially different? And what I’m particularly wondering is, should we be thinking that you’re just going to see sequential growth as demand is kind of strong, still all indications of cloud CapEx remained very strong that you could grow through even typically a seasonal weaker quarter like the March quarter? And I have a follow-up.

Tiang Yew Tan: Yes. Thanks, Wamsi, for the question. Look, I think you sort of got it well in the sense that we are structurally quite a different business today than we were in the past. As you highlighted, 90% of our business is in the data center. A large portion of that business is driven by a few set of key hyperscale customers that we have. They have multiyear CapEx programs to really invest in their data storage assets, both to support the ongoing growth in the cloud and to also support the additional tailwind that they see coming from the AI revolution as well. So that, plus the fact that we also now have moved to a 52-week lead time program with them. And as we’ve highlighted, we have POs all LTAs for all 5 of our top customers spending the entire fiscal year ’26 and for 2 out of 5 of them, all the way to the middle of fiscal year ’27, we don’t think that the seasonality of the past applies anymore.

It’s really driven by the cloud CapEx spend of the big hyperscalers in terms of their new data center deployments, the refresh cycles as well. Having said that, we do recognize that we are in a cyclical business. At some point, those cycles, there will be periods of digestion, as we highlighted in our Q3 results as well, but we pretty much have a really good handle on how the business is slowing over a 12-, 18-month time frame. But if I summarize it, you got it pretty right. The traditional seasonality of the past doesn’t really apply to this business a lot more. It’s really driven by the programs that our hyperscale customers have in terms of new data centers coming online in their refresh cycles.

Wamsi Mohan: Okay. That’s super helpful, Irving. And as my follow-up, Kris, I just wanted to go back to the incremental margin question that Erik asked around, and you answered with the moving pieces being price, mix and cost. So if we think about the sequential improvement in this June quarter of 120 bps, what would you say was the biggest driver between those 3 elements. And as we look forward, where do you see the most opportunity? I would think that the pricing is what it’s going to be. It’s pretty stable. It’s kind of not maybe a huge incremental driver. So should we think that mix is really the biggest kind of contributor on a go-forward basis as you mix up these UltraSMR drives? Or should I be thinking about it differently?

Kris Sennesael: No. You have it right. Mix is the most important item that we, as a company, focus on. That’s why we continue to invest in our technology and product road maps and really focusing on higher capacity drives. That is something that our customers are asking us for. That’s something we are working and collaborating with our customers on, and it’s a win-win situation. For us, higher capacity drives typically translates into higher gross margin. And the company is executing really well on that.

Tiang Yew Tan: Maybe Wamsi, this is Irving. I’ll just add on to what Kris said. So I echo exactly what I said it’s really driven very much by mix. And you would have seen that our latest generation of ePMR drives a 26-terabyte CMR and 32-terabyte UltraSMR, the number of units that we shipped doubled in the second quarter, up from just over 800,000 units in last quarter to over 1.7 million units this quarter. That’s a clear recognition of our customers seeing the TCO value that it delivers, the strong reliability that it delivers to — and quality that they are comfortable and used to from our ePMR drives. And as I’ve highlighted in the past as well, these drives are not only at the leading edge of capacity points, where the ability of our operations teams deliver very high yields is also adding to the profitability of that business.

And we look forward to introducing our next-generation ePMR drives in the not-too-distant future. So I think there will be continued room to continue to deliver value, innovation TCO benefit that we can benefit from and drive further margin expansion.

Operator: Our next question comes from Karl Ackerman with BNP Paribas.

Karl Ackerman: So one of the main ways you have driven higher margins is from the adoption of UltraSMR, and I was hoping if you could discuss the adoption curve and willingness of hyperscalers to grow their hard drive base exclusively on UltraSMR. I guess, is there a certain workload — are there certain workloads where UltraSMR is disadvantaged that would prevent you from attaining perhaps 100% of your fleet on UltraSMR?

Tiang Yew Tan: Karl, thanks for the question. Well, we have, in the past, had 2 key customers on UltraSMR. We’ve just completed the qualification of a third hyperscale customer out of our top 5 on UltraSMR and just starting to ramp UltraSMR in the second half of the calendar year. We now have a fourth customer in the process of qualifying UltraSMR as well. And again, to reiterate, it’s very important to note that UltraSMR is a technology that will be extensible into HAMR as well. As we transition into our HAMR products in the not-too-distant future, we will be able to deliver that on the UltraSMR platforms as well to enable our customers to take advantage of the incremental capacity points within that. Specifically, your question around workloads.

It really depends on the application. So even in the existing customer environments that do use UltraSMR today, there are some specific legacy workloads that they buy lower capacity drives, 18, 20 terabyte drives. But what we are seeing is that for any new workloads that they are bringing to the market, it’s all on the highest capacity points that they can adopt, which is typically on UltraSMR.

Ambrish Srivastava: Do you have a follow-up, Karl?

Karl Ackerman: I do, if I may. So you and your peer have seen the strongest visibility in terms of order rates and really the longest time ever. That clearly speaks to the demand requests from hyperscale customers. Clearly, they would love to have you add capacity given the longer lead times and the sophistication of these customers, how do you balance the visibility with those customers as well as the demand request for those customers as you plan your capacity playing and they could plan their hyperscale build-outs for the next 2 years?

Tiang Yew Tan: Yes. It’s a great question. So on the demand signal, I think the first step was really to educate our customers on the long lead times as the products become much more sophisticated as we move to higher capacity drives. We have highlighted and they’re aware that really the long lead times are driven by the hit wafers that we have to produce that take roughly 9 months to produce a head wafer and then a 3 months to convert them into headstack. So 1 year lead time on that component alone, and that’s been instrumental in driving us to that 12-month LTE visibility. We are now also having conversations with them, as I’ve highlighted with 2 of them, we now have 18 months visibility. So that really is a key in terms of that partnership to get greater visibility to support their growth requirements.

That’s giving us a lot of insight into how we need to accelerate our aerial density improvements in our products. That also is a function of why you saw the very rapid take-up of our latest generation of ePMR drives. I think we will see something very similar in our next generation of ePMR drives out very soon as well. But again, the focus is on really delivering increased aerial density to our customers, through technologies like UltraSMR, OptiNAND. And if there’s any investment that we do need to make into capacity, it’s really on the head and media side of our business to support aerial density improvement.

Operator: Our next question comes from Asiya Merchant with Citigroup.

Asiya Merchant: I think in the last call, there was some discussion on tariffs and some potential for enterprise slowdown. Just curious if you have anything to suggest there any updates there? And how do we make sure — how do we — how are you making sure that some of this demand is not just related to tariff pull forward?

Tiang Yew Tan: Yes. Thanks, Asiya, for the question. I guess there are 2 parts to the question. First, on the enterprise demand. We called it out as a risk with the potential concern that the impact of tariffs might have. We haven’t seen that materialize. So obviously, the tariffs, some of the reciprocal tariffs got pushed out as well. So we haven’t seen that yet. But again, as I highlighted, some of the potential softness in enterprise, which didn’t materialize, we would pick up in the cloud anyway because enterprises will move from CapEx to consumption-based models. So we sort of netted off regardless, but we haven’t seen any of that risk materialize. To your second question about tariffs, it’s a very fluid and dynamic situation.

But we don’t see any double ordering based on the analysis that we’ve done. We look at in quarter linearity trends and they’re very similar to what we’ve seen historically. We compare that against the 12-month lead times that our customers have given us either through firm POs or through LTAs and they’re pretty much matching those same projections to the T. And last but not least, we’re in a very, very tight supply environment. So our ability to deliver upside within a quarter is also very limited. For those reasons and the fact that we do monitor our customer inventory levels the best we can. We don’t see any pull forwards as a result of tariffs as of now.

Ambrish Srivastava: Thank you for your 2 questions, Asiya. We go to the next caller please.

Operator: The next question comes from Tom O’Malley with Barclays.

Thomas James O’Malley: I just wanted to make sure I heard this correctly. You guys said ASPs in the June quarter were down low single digits. Is that correct?

Tiang Yew Tan: So Tom, so ASPs per drive continue to go up as we move to higher capacity drives but ASP per terabyte was slightly down, but mostly driven by mix because the price environment is very stable.

Thomas James O’Malley: Got it. That makes sense. And then, I guess, as a follow-up, if you look at the market today. I think that your competitor had talked about an exabyte target where after that certain target, I think they said around 160 exabytes, they would need to see growth really exclusively from technology transitions. I asked you last quarter, but in terms of where you guys stand, is there any mark that you would call out as that kind of waterfall? Is there a spot that you would say from this point forward, we only need technology transitions to move forward just in your ability to capacity kind of constrain the market? Anything you have there?

Tiang Yew Tan: Yes. Tom, I would say that if you look at the last quarter, we delivered 190 exabytes, and that’s really a result of the latest generation of ePMR drives that we’ve delivered. So our ability to not only produce higher capacity drives, vulnerability to produce them at scale with high yields, I think, has really differentiated us. And so we look — we are laser-focused on continuing to ensure we have high yields of our components, our drives and continuing to deliver products to our customers at scale. So as a result of that, we don’t have to make any incremental investments into capacity.

Operator: Our next question comes from Amit Daryanani with Evercore.

Amit Jawaharlaz Daryanani: I guess maybe to start with, I was hoping you folks would spend a bit of time on talking about how does the extra week flow through your P&L and on the revenue and OpEx side? And what’s the right OpEx run rate to think about beyond that extra week?

Tiang Yew Tan: Yes. On the revenue side, our customers, they think in quarterly buckets in line with their long-term forecasts and LTAs, and POs that they have placed. So we don’t really see much on the revenue side. There might be a little bit of a benefit in the consumer retail side of the business. But as you know, that’s relatively small for Western Digital. On the OpEx side, however, it is an extra week. It’s, I would say, it’s on or about $15 million, $1-5 million of incremental spend that happens in Q1 of fiscal ’26. Obviously, looking ahead to Q2, Q3, Q4, that comes out of it as those quarters are normal 13-week quarters.

Ambrish Srivastava: Do you have a follow-up, Amit?

Amit Jawaharlaz Daryanani: I do. Irving, you initially having spoken a good bit about Agentic AI deployment and how that could drive demand for HDDs. If I think about your Analyst Day, you talked about like 20% exabyte growth, mid- to high single-digit revenue growth for the company. As you start to see AI getting deployed, I’m wondering how do you think those numbers can move higher? And if there is way to quantify what kind of tailwind this would provide for your business longer term?

Tiang Yew Tan: Yes. Thanks, Amit, for the question. Yes, if you recall what we presented at Investor Day was a base model that 15 exabyte growth. That was primarily driven by the sort of secular growth in the cloud, and we highlighted the potential upside of that 15 exabyte CAGR growth to 23% as a result of an AI uplift. We are starting to see some of that uplift materialize. So it’s still early days, but we think that the exabyte growth is more between the 15% to 23% range rather than the base number that we’ve highlighted. In that model that we presented at Investor Day, we also had a 7% ASP decline. As Kris highlighted, we’re seeing a much lower ASP decline in the low single digits as well. So as we see exabyte growth trend more to that level and ASP is in the low single digits.

There’s definitely opportunity for revenue growth from a CAGR perspective to go from the sort of mid- to high single-digit range that we have highlighted at Investor Day to trend more towards the mid-teens. And if you take that mid-teens revenue growth with the OpEx levels that we’ve highlighted, we will probably be at an OpEx level of 10% of OpEx to revenue. So hopefully, that gives you a sense of bridging what we shared at Investor Day and the changing outlook that we see in the business as a result of the AI tailwinds that we’re beginning to highlight.

Operator: Our next question comes from Ananda Baruah with Loop Capital.

Ananda Prosad Baruah: 2 if I could, I’ll do one and then one. Could you — Irving, could you remind us of the aerial density road map from here until HAMR? And where do you think HAMR — where do you think you come out aerial density-wise, let’s say you sort of execute to the first half 2020 — calendar year 2027 road map. Where do you think your aerial density lies there? So the road map up to that point and then where do you think you come out of that with HAMR?

Tiang Yew Tan: Sure. No problem. Also, our current ePMR product that we’ve brought into the marketplace is a 26-terabyte CMR, 32-terabyte UltraSMR. We have highlighted in our road map, but we look to start qualification for our next generation of ePMR, which will be our final generation of ePMR in the first half of calendar year 2016. That will be a 28-terabyte CMR, 36-terabyte UltraSMR. And then we will start qualification of HAMR in the second half of calendar year ’27 with ramp in the first half of ’27 — calendar year ’27. That will be at the 38 terabytes CMR, 44 terabyte UltraSMR. As we’ve highlighted in the past, we feel the 4 terabyte per platter or if you assume a 10-disk drive, 40 terabyte drive, 4 terabytes per platter is sort of where we see things as of now, the economic crossover where it makes economic sense to transition to HAMR.

Ambrish Srivastava: Do you have a follow-up, Ananda?

Ananda Prosad Baruah: I do, Ambrish. And really more of a clarification. You guys mentioned the Platforms business and opportunity to sell dense systems into native by AI companies, don’t have their own infrastructure. Are those the neo cloud? Is that what you’re talking about? And then how many of those — like — and if yes, like what’s a useful way to think about which of that cadre may not have their own infrastructure change? I’d imagine some of the larger ones do. So just in a useful context would be helpful.

Tiang Yew Tan: Sure. Thanks for the question. I’ll give you some insight. We actually do have really 1 large cloud provider that’s buying platforms from us today that’s being deployed at scale. We also have quite a significant number of Storage as a Service providers that are leveraging our platforms business as well to deliver those services to customers. And as you’ve highlighted, a lot of the neo clouds, their primary focus is really on driving compute capabilities, supporting their customers with their LLM development and then really looking at how they can either leverage the cloud. Or our platform like systems to really support their storage requirements going forward. So we think there’s a lot of legs to this business.

Obviously, it’s early days. and very similar to what we saw in the cloud, it starts with compute and then eventually it will come down to storage as we saw even in AI in the mainstream cloud where it was GPUs first, HBMs, DRAMs and then eventually, we are seeing that flow through to storage. We think that sort of trend will play itself out in the neo cloud as well and be very beneficial for our platforms business.

Operator: And our last questioner today will come from Mark Miller with the Benchmark Company.

Mark S. Miller: I’m just wondering, could you actually quantify the hard drive ASPs in the quarter?

Ambrish Srivastava: Sorry, what’s the question?

Mark S. Miller: What were your hard drive ASPs in the June quarter?

Ambrish Srivastava: You mean unit?

Mark S. Miller: The average selling price — yes, for hard drives.

Ambrish Srivastava: Yes. So we — as you see the disclosures. This is Ambrish. We have stopped providing ASP per unit because as Irving highlighted earlier, that what’s more important for our business is EP. And so just to give you a context of why we changed and what we are providing now. Kris, do you want to add to that?

Kris Sennesael: Yes. And I think we provided the units. And so I think it’s — you can easily do the math, and you will see, I think, a substantial sequential as well as year-over-year growth in our revenue per drive that we have. But again, it’s — a lot of it depends on the mix of our overall revenue, and so for me, that number is somewhat meaningful. Yes, it’s trending upwards, again, mostly driven by the move to higher capacity drives, something that we work with our customers on.

Mark S. Miller: And just finally, DSOs for the quarter ?

Kris Sennesael: DSO? I don’t have it on top of my head, but we did — as a company, we did a really good job at managing our working capital. I’m very comfortable with the level of inventory that we have right now, which is on or about $ 1.3 billion that translate into days of inventory of 76 days. And then the DSOs came down, I believe, 6 days on a sequential basis and is now at 52 days. So again, really, as you know, DSOs is mostly driven by the billing finality within the quarter. And as Irving indicated that before, that continues to be very strong as well.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Irving Tan for any closing remarks.

Tiang Yew Tan: Thank you all again for joining us today and your interest in Western Digital. As our results and guidance show we continue to make good progress executing on our strategy, and we look forward to sharing more on the exciting innovations we have in the pipeline and actions we are taking towards creating long-term shareholder value in future calls. Let me close by giving a call out to all our WD drivers who show up every day, making a difference for our customers, shareholders, ecosystem partners and each other. Thank you all very much, and have a great day ahead.

Operator: This concludes today’s conference call. Thank you for joining. You may now disconnect.