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Key highlights from Western Digital Company (WDC) This fall 2023 Earnings Concall
Administration Replace:
[00:07:08]WDC mentioned common capability per client and consumer SSD elevated over 40% and 20% YoY, respectively.
[00:07:39] The corporate expects general demand to stay steady in 1Q. And for fiscal yr 2024, WDC expects capital expenditures to say no considerably.
Q&A Highlights:
[00:20:55] Joseph Moore at Morgan Stanley requested if the same stage of underutilization costs in NAND in 4Q imply that utilization is unchanged, stock is being decreased, and utilization could be introduced again up sooner or later. David Goeckeler CEO mentioned NAND had a superb market response in client and consumer companies, with development in exabyte foundation, whereas the fab remains to be underutilized, worth declines are moderating, stock is down, bit shipments are up, and WDC expects double-digit bit shipments subsequent quarter. Underutilization costs in 4Q have been just like 3Q, with 70% of the fees coming from Flash and 30% from HDD and are anticipated to stay related in 1Q and 2Q.
[00:23:04] Joseph Moore from Morgan Stanley additionally requested about an replace on the makes use of of money within the subsequent few quarters, together with the convert due early subsequent yr and potential tax cost, and if cash must be raised to pay these. Wissam Jabre CFO replied that WDC plans to handle the convert maturing in Feb. 2024 and the IRS settlement in 1Q or 2Q. The corporate has $4.9 billion in liquidity and can draw down the delayed-draw time period mortgage to pay the IRS settlement.
[00:24:52] C.J. Muse of Evercore ISI enquired about supply-demand normalization. David Goeckeler CEO replied that WDC noticed sequential bit development general, with client SSD content material up 40% and consumer SSD up 20%, and expects its bits to be flat YoY for the fiscal yr and down low-single digits for the calendar yr. The corporate is taking actions to convey provide and demand into higher stability, and is seeing that in its two largest markets for flash.
[00:27:38] Michael with Wells Fargo requested how the latest uptick in AI funding within the knowledge middle impacts the combo of flash relative to HDD capability and the way it might affect WDC going ahead, and an replace on the corporate’s enterprise SSD {qualifications}. David Goeckeler CEO mentioned WDC is optimistic that generative AI will result in a profound improve within the fee of knowledge creation, which can drive incremental development throughout SSDs and onerous drives. The corporate remains to be investing in enterprise SSDs and feels good about its place with the most important cloud distributors.
[00:31:03] Tom O’Malley with Barclays queried concerning the newest timing for the restoration of the cloud portion of WDC’s HDD enterprise and the well being of that enterprise right this moment. David Goeckeler CEO answered that WDC expects sequential exabyte development in capability enterprise HDD all through the fiscal yr, however the restoration will take just a few extra quarters. The corporate expects issues to look higher in early subsequent yr.
[00:32:35] Tom O’Malley with Barclays requested if WDC thought of being extra aggressive on pricing within the HDD enterprise, and WDC’s technique with shoppers on pricing. David Goeckeler CEO replied that innovation drives pricing, particularly with the 28T Extremely SMR product as the muse for a greater TCO proposition, whereas different merchandise like ePMR or OptiNAND are positioned for future development. The remainder of the market follows extra conventional market-driven pricing influenced by provide and demand throughout varied channels and markets.
[00:36:09] Krish Sankar at Cowen requested if the 32TB ePMR remains to be early in WDC’s roadmap, and the way will it affect gross margin. David Goeckeler CEO mentioned that WDC is continuous to innovate within the HDD house and has a roadmap to extend capability from 20TB to 30TB+ utilizing ePMR, OptiNAND, and Extremely SMR applied sciences.
[00:38:17] Wamsi Mohan with Financial institution of America enquired what’s underpinning WDC’s confidence within the restoration of the cloud HDD market, and is the corporate contemplating a build-to-order philosophy. David Goeckeler CEO answered that WDC is assured within the restoration of the cloud HDD market primarily based on ongoing conversations with prospects. The corporate can be contemplating a build-to-order philosophy to scale back prices and enhance effectivity.
[00:42:10] Sidney Ho of Deutsche Financial institution requested how have WDC’s conversations with giant hyperscale prospects modified since 1Q, and what are their expectations for stock stabilization, provide, and buy commitments in 2H. David Goeckeler CEO mentioned that WDC is having productive conversations with hyperscalers concerning the timing of their return to purchasing HDDs. The corporate can be getting good reception for its product roadmap, which incorporates 22-, 24, 26, and 28-terabyte drives.
[00:44:23] Sidney Ho of Deutsche Financial institution enquired concerning the present adoption fee of SMR drives within the cloud, and the way WDC expects it to alter within the subsequent few quarters. David Goeckeler CEO replied that SMR adoption is lumpy, however a number of main cloud suppliers are standardizing on Extremely SMR and WDC expects important ramp within the subsequent a number of quarters.
[00:48:59] Shannon Cross with Credit score Suisse requested how WDC thinks the combo of HDDs and SSDs will pattern over time, and the way does AI affect this pattern. David Goeckeler CEO answered that HDDs and SSDs are each rising within the knowledge middle, however HDDs are nonetheless the predominant storage mechanism. WDC expects this to proceed for the foreseeable future.
[00:51:11] Shannon Cross with Credit score Suisse enquired how WDC plans to handle its opex as revenues get well. Wissam Jabre CFO replied that WDC is managing its opex tightly and expects opex to extend because the enterprise recovers, however not sooner than income.
[00:53:01] Timothy Arcuri with UBS requested concerning the present NAND utilization fee and requested if there’s a milestone for when HDD under-utilization costs will go away. Wissam Jabre CFO mentioned WDC expects underutilization costs to stay flat in 1Q and decline by 5-10% in 2Q, with all the decline coming from HDD. It’s too early to say when HDD underutilization costs will go away, however they don’t want to succeed in $2 billion in income to be absolutely utilized.
[00:55:31] Timothy Arcuri with UBS enquired how will WDC’s debt service prices improve when it replaces its 1.5% convertible debt with new debt, and the way will this have an effect on the corporate’s capital construction. Wissam Jabre CFO mentioned WDC expects the rate of interest on its new debt to be larger than the 1.5% rate of interest on its present convertible debt. The corporate remains to be evaluating its choices and is aiming to keep up a decrease value of capital.
[00:57:26] Ananda Baruah with Loop Capital requested when does WDC count on 26-terabyte and 28-terabyte drives to succeed in crossover, and the elements driving this. David Goeckeler CEO replied that within the subsequent few quarters, there shall be a balanced distribution of capability factors within the HDD market, with 26-terabyte drives changing into a number one capability level.
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