Western Digital (WDC) Q2 2025 Earnings Name Transcript

Western Digital (WDC -0.11%)
Q2 2025 Earnings Name
Jan 29, 2025, 4:30 p.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Individuals

Ready Remarks:

Operator

Good afternoon, and thanks for standing by. Welcome to Western Digital’s second quarter fiscal 2025 convention name. Presently, all individuals are in listen-only mode. Later, we’ll conduct a question-and-answer session.

[Operator instructions] As a reminder, this name is being recorded. Now, I’ll flip the decision over to Mr. Peter Andrew, vice chairman, monetary planning and evaluation and investor relations. You might start, sir.

T. Peter Andrew — Vice President, Monetary Planning and Evaluation and Investor Relations

Thanks, and good afternoon, everybody. Becoming a member of me in the present day are David Goeckeler, chief govt officer; and Wissam Jabre, chief monetary officer. Earlier than we start, let me remind everybody that in the present day’s dialogue incorporates forward-looking statements based mostly on administration’s present assumptions and expectations and, as such, does embody dangers and uncertainties. These forward-looking statements embody expectations for our product portfolio, our enterprise plans and efficiency, the separation of our Flash and HDD companies, ongoing market tendencies, and our future monetary outcomes.

We assume no obligation to replace these statements. Please confer with our most up-to-date monetary report on Kind 10-Okay and our different filings with the SEC for extra data on the dangers and uncertainties and that might trigger precise outcomes to vary materially from expectations. We may even make references to non-GAAP monetary measures in the present day. Reconciliations between the non-GAAP and comparable GAAP monetary measures are included within the press launch and different supplies which can be being posted within the Investor Relations part of our web site.

With that, I’ll now flip the decision over to David for introductory remarks.

David V. Goeckeler — Chief Govt Officer

Thanks, Peter. Good afternoon, everybody, and thanks for becoming a member of the decision to debate our second quarter fiscal yr 2025 efficiency. As lots of you understand, with the completion of our separation later within the fiscal third quarter, I’ll develop into the CEO of SanDisk. In consequence, this will probably be my final earnings name because the CEO of Western Digital.

Earlier than we dive into our second quarter outcomes, I need to categorical my gratitude to our staff, clients, companions, and shareholders for his or her unwavering assist all through my tenure. It has been an honor and a privilege to function the CEO of Western Digital, and I am immensely pleased with what we have achieved collectively to place each of our franchises for long-term success as stand-alone firms. Now, on to the outcomes. For the second fiscal quarter, Western Digital delivered income of $4.3 billion, non-GAAP gross margin of 35.9%, and non-GAAP earnings per share of $1.77.

Our dedication to enduring high quality and reliability pushed by our industry-leading innovation and diversified portfolio has enabled us to navigate the present market dynamics successfully. Whereas our HDD enterprise is experiencing sturdy progress, significantly in high-capacity enterprise drives, our Flash section faces non permanent headwinds as a result of pricing stress. Regardless of these challenges, we’re strategically well-positioned to capitalize on rising long-term storage demand from the AI knowledge cycle. Our HDD enterprise continues to carry out nicely, propelled by our cutting-edge UltraSMR expertise.

This innovation permits us to push the boundaries of storage capability whereas sustaining the gold normal in reliability, high quality, and efficiency. The market has responded to our merchandise enthusiastically, driving our HDD revenues to a 12-quarter excessive with a file non-GAAP gross margin. We’re seeing growing adoption of our newer and higher-density drives, underscoring their capability to satisfy the evolving calls for of the storage market. I am happy to report that we’re within the ultimate phases of our plan to separate our Flash and HDD companies and anticipate this to be accomplished on schedule.

Throughout the second fiscal quarter, we achieved two essential milestones: finishing our Kind 10 submitting and finalizing key financing actions essential for the separation. Because of the meticulous planning and dedication of our groups, we’re able to function as unbiased entities. We invite you to hitch us for our upcoming Investor Days on February 11 for SanDisk, on February 12 for Western Digital, the place our respective administration groups will share their strategic visions and display how every enterprise will drive shareholder worth as stand-alone entities. We anticipate that inside a number of weeks after the Investor Days, Western Digital and SanDisk shares will start buying and selling as unbiased firms.

Turning to our enterprise models replace. In Flash, income was steady and consistent with expectations. Energy in consumer and client resulted in better-than-expected bit shipments. Nevertheless, elevated pricing stress as a result of short-term oversupply from elevated utilization charges all through calendar yr ’24, coupled with clients working down stock, offset our bit cargo outcomes.

Cloud pricing was a constructive given continued AI-driven demand. Taken collectively, the consequence was a sequential decline in profitability. In fiscal yr 2024, client skilled progress throughout income, models, and gross margins as the tip market benefited from a market restoration. Whereas income and models grew sequentially within the fiscal second quarter of ’25, gross margin declined as a result of pricing stress brought on by oversupply within the broader NAND market.

Regardless of this current softening, our exterior SSD drive shipments grew 50% sequentially. Our efforts in bolstering client choice, increasing partnerships, and launching our new creator sequence at CES all present SanDisk with the proper basis to drive natural demand and margin enlargement. Now, turning to the Flash outlook. We consider that we’re presently in a mid-cycle pause.

Within the first — within the fiscal third quarter, we anticipate bit shipments to be down with stronger demand in knowledge heart and cellular greater than offset by decrease bit shipments in PC OEM and client. Given the stronger-than-anticipated pricing headwinds on we’re proactively managing manufacturing ranges to reply to ongoing stock changes and evolving demand dynamics throughout our finish markets. By optimizing utilization and complete capability, with a key give attention to delivering premium nodes, we goal to speed up stabilizing profitability on this dynamic market. On this new period of NAND, with decrease utilization and fewer intense capex setting relative to historic durations, we’re seeing provide progress appropriately responding to the present short-term headwinds affecting demand, and we anticipate to see a restoration as we transfer by calendar yr 2025.

Particularly, we anticipate consumer stock digestion to proceed into the primary half of calendar yr ’25 with normalization within the second half paving the way in which for a restoration that may allow the AI-driven PC ramp within the Home windows refresh cycle to realize momentum. In knowledge heart, we venture cloud capex to proceed to develop in calendar yr ’25, and we proceed to make good progress qualifying our cloud merchandise with clients to seize our justifiable share of this market. Lastly, our client enterprise continues to carry out nicely and whereas we anticipate seasonal weak point in bit shipments, our premium manufacturers are offering ASP assist to the general portfolio. We stay up for discussing our views on the Flash enterprise on the SanDisk Investor Day on February 11.

The crew and I’ll focus on why we consider that our markets are sturdy and rising, how speedy adoption of AI is creating new alternatives, what differentiates SanDisk, and the way the Flash {industry} is evolving. We’re very excited and consider you may be as nicely. Our HDD enterprise delivered one other quarter of sturdy efficiency with knowledge heart income hitting an all-time excessive. This achievement underscores the energy of our nearline storage options and the way well-positioned we’re to learn from ongoing market tailwinds.

The HDD enterprise additionally achieved file gross margins as clients proceed to extend the adoption of our greater capability drives, and we shared within the TCO profit supplied by our revolutionary merchandise. We’re working in an setting the place demand for our product exceeds provide. To proactively handle this, we frequently work with our clients to get visibility into their future wants. In these tight situations, we would see volatility in shipments from quarter to quarter, however over the long term, we proceed to progress towards a state of predictable enterprise operations and sustainable worthwhile progress.

Turning to the HDD outlook. Within the fiscal third quarter, we anticipate continued momentum in knowledge heart to drive sturdy demand throughout our nearline portfolio. As I discussed, our provide is now very tight, which helps us get higher visibility into long-term buyer demand and enabling higher planning for product deliveries within the coming quarters. Our clients more and more admire the complexity of the HDD provide chain and the necessity for us to raised anticipate future demand.

As we proceed to broaden adoption of our UltraSMR portfolio at our largest clients and full the qualification and ramp of our latest drives, we anticipate profitability will proceed to enhance within the coming quarters. The HDD enterprise’ constructive structural transformation continues to realize momentum. We stay centered on operational excellence, environment friendly price construction, and a powerful dedication to sustaining a balanced provide demand dynamic. We’re well-positioned to proceed delivering essentially the most worthwhile and revolutionary product portfolio whereas establishing long-term {industry} management by our earnings potential.

Throughout the upcoming WD Investor Day on February 12, Irving and his crew will present an in depth overview of HCD’s strategic street map. I need to take a second to acknowledge the CFO transition announcement that we made two weeks in the past. After almost three years with us, Wissam will probably be shifting on to a different alternative. Wissam has been an impressive companion and chief at Western Digital, serving to us efficiently navigate the corporate by the ups and downs of our finish markets and construct a powerful monetary profile at each HDD and Flash.

On behalf of the board and everybody at Western Digital, I need to thank Wissam for his many contributions, together with seeing us by the separation, and want him the most effective of luck in his subsequent function. Let me now flip the decision over to Wissam, who will focus on our fiscal second quarter outcomes.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Thanks, David, and good afternoon, everybody. Within the fiscal second quarter, Western Digital delivered outcomes typically throughout the steering ranges we gave in October within the face of a difficult pricing setting in Flash. Complete income for the quarter was $4.3 billion, up 5% sequentially and 41% yr over yr. Non-GAAP earnings per share was $1.77.

finish markets, Cloud represented 55% of complete income at $2.3 billion, up 6% sequentially and greater than doubling yr over yr. On a sequential foundation, the expansion was as a result of a rise in nearline HDD shipments, whereas Flash was down. On a year-over-year foundation, each HDD and Flash income grew. Shopper represented 27% of complete income at $1.2 billion, down 3% sequentially and up 4% yr over yr.

In comparison with final quarter, Flash income declined as bit cargo progress was offset by pricing stress, whereas HDD income was flat. 12 months over yr, a rise in Flash income was primarily as a result of greater ASPs as bit shipments declined and was partially offset by decrease HDD income. Client represented 18% of income at $0.8 billion, up 14% sequentially and down 8% yr over yr. Sequentially, each Flash and HDD bit shipments grew and drove income progress whereas pricing was a headwind.

12 months over yr, the lower was as a result of decrease shipments in Flash and HDD and pricing in Flash. Turning now to income by enterprise unit. Within the fiscal second quarter, Flash income was $1.9 billion, flat from final quarter and up 13% yr over yr. Sequentially, Flash ASPs decreased 13% on a like-for-like foundation and 10% on a blended foundation.

Bit shipments have been up 9% from the earlier quarter and down 2% in comparison with final yr. HDD income was $2.4 billion, up 9% sequentially and 76% yr over yr. The energy of our nearline portfolio delivered exabyte progress of seven% on a sequential foundation and 93% versus a yr in the past. Common value per unit elevated 5% sequentially to $172.

Nearline bit shipments have been at a file stage of 154 exabytes. Shifting to the remainder of the earnings assertion. Please be aware, my feedback will probably be associated to non-GAAP outcomes until acknowledged in any other case. Gross margin for the fiscal second quarter was 35.9%, which was under our steering vary.

Sequentially, gross margin was down 2.6 share factors and up 20.4 share factors from a yr in the past. Flash gross margin was 32.5%, down 6.4 share factors sequentially as a result of pricing stress late within the quarter. Flash gross margin was up 24.6 share factors from a yr in the past. In HDD, sturdy demand for nearline drives resulted in gross margin enchancment of 0.5 share factors on a sequential foundation to 38.6% and 13.8 share factors from a yr in the past.

Working bills have been down sequentially and at $674 million, together with the synergy bills of $17 million. Decrease-than-expected working bills have been because of the synergy prices being decrease than expectations, whereas progress towards executing the SanDisk spend stays on observe. As well as, variable compensation was decrease than expectations aligned with enterprise efficiency. Our outcomes display continued give attention to price self-discipline whereas making progress towards the completion of the enterprise separation.

Working earnings was $864 million, down 2% sequentially, pushed by decrease gross margin, partially offset by decrease working bills. Working margin was 20.2%, down roughly 140 foundation factors sequentially however favorable in comparison with working losses posted final yr. Revenue tax expense was $105 million, and the efficient tax fee was 14%. Earnings per share was $1.77.

Working money stream for the fiscal second quarter was $403 million, and free money stream technology was $335 million. Money capital expenditures, which embody the acquisition of property, plant, and gear and exercise associated to Flash joint ventures on the money stream assertion represented a money outflow of $68 million. Fiscal second-quarter stock was largely flat at $3.4 billion, with days of stock declining by 9 days to 112 days. The lower in HDD stock was offset by a rise in Flash stock.

Gross debt excellent was $7.4 billion on the finish of fiscal second quarter. Money and money equivalents have been $2.3 billion, and complete liquidity was $4.5 billion, together with undrawn revolver capability. Throughout the fiscal second quarter, we efficiently organized financing for the upcoming separation of our enterprise, which is a key milestone, and the progress towards the spin of SanDisk. I will now flip to the fiscal third quarter non-GAAP steering for Western Digital on a mixed foundation.

We anticipate total income to be within the vary of $3.75 billion to $3.95 billion. Gross margin is anticipated to be between 31.5% and 33.5%. We anticipate working bills to extend barely to a variety of $700 million to $720 million, together with dis-synergy prices of $25 million to $40 million as we finalize the separation of our companies. Curiosity and different bills are anticipated to be roughly $100 million.

The tax fee is anticipated to be between 14% and 16%. We anticipate EPS of $0.90 to $1.20 based mostly on roughly 358 million shares excellent. We’re trying ahead to each of our Western Digital and SanDisk Investor Days in simply a few weeks to debate every enterprise in additional particular element. For now, I will present directional perspective on expectations from every enterprise within the fiscal third quarter.

For Flash, we anticipate income to say no sequentially within the mid-teens share and gross margin to lower as a result of decrease blended ASPs, greater price per bit, and underutilization costs of $20 million to $30 million as we handle our provide. Flash bits are anticipated to say no sequentially by mid-single-digit share. We additionally anticipate underutilization costs to proceed within the June quarter. For HDD, we anticipate income to lower sequentially by mid- to excessive single-digit share on decrease quantity, whereas gross margin is anticipated to enhance by roughly 50 foundation factors as common value per unit continues to pattern greater.

We’re centered on executing the ultimate phases of the spin and navigating present market dynamics whereas persevering with to ship sturdy monetary efficiency. I wish to shut by saying that it has been an amazing honor to companion with David and the improbable crew at Western Digital. I am extraordinarily pleased with the crew’s accomplishments over the previous three years. There isn’t any doubt in my thoughts that each the HDD and Flash companies are sturdy and resilient, and each will proceed to offer industry-leading merchandise to {the marketplace} whereas unlocking vital shareholder worth for his or her respective shareholders.

With that, I will now flip the decision again over to David.

David V. Goeckeler — Chief Govt Officer

Thanks, Wissam. Our outcomes this quarter mirror our efforts to actively handle near-term cyclicality throughout our finish markets, realizing we’ve got a strong basis for future success that’s underscored by our industry-leading product street map. As we full the separation, I’m extraordinarily assured in our respective crew’s capability to drive shareholder worth in each the HDD and Flash companies. Each firms will proceed to be pushed by the structural long-term tailwinds of the AI knowledge cycle and our capability to persistently provide our clients essentially the most compelling and revolutionary storage options.

Earlier than we transfer to the Q&A session, I would like to focus on that we are going to even be joined in the present day by Irving Tan, who will step into the function of CEO at Western Digital; and Luis Visoso, who will assume the place of CFO at SanDisk. Peter, let’s begin the Q&A.

Questions & Solutions:

Operator

Thanks. And girls and gents, we’ll now start the question-and-answer portion of in the present day’s name. [Operator instructions] One second, please, for the primary query. And in the present day’s first query comes from C.J.

Muse at Cantor Fitzgerald. Please go forward.

C.J. Muse — Analyst

Yeah, good afternoon. Thanks for taking the query. I assume first query on the HDD aspect. You talked a few sequential decline for the March quarter.

Curious, is {that a} operate of merely decrease consumer and client models or are you additionally seeing a pause in cloud? And inside that assemble, are you able to converse a bit extra about your ready remarks associated to expectations for volatility Q on Q and HDD, making an attempt to raised perceive what’s actually driving that underlying change?

David V. Goeckeler — Chief Govt Officer

Hey, C.J. I’ll let Irving take that one.

Irving Tan — Govt Vice President, World Operations

Thanks, David. Hello, C.J. Look, I feel we have seen over 5 quarters, a really sturdy constructive progress in income and the outlook for the enterprise stays wholesome. There will probably be quarter-on-quarter variations as we assist clients with the timing of the deployments and likewise balancing the provision demand tightness that we’ve got.

So, that is actually what’s driving the slight decline in Q3.

C.J. Muse — Analyst

Nice. Very useful. And I assume, Dave, a query for you. Two elements.

First, what offers you the arrogance that that is only a mid-cycle pause? After which throughout the spin of the NAND asset, are there another type of technical regulatory issues that we needs to be fascinated by which can be essential to get that executed within the subsequent 4 weeks? Thanks very a lot.

David V. Goeckeler — Chief Govt Officer

On the spin, you may see extra about that actually within the subsequent couple of days. We really feel actually good about that being on observe. Wissam can undergo a number of the dates right here in a minute. Look, on the NAND, we’re nonetheless seeing bits have been up 9% this quarter, they are going to be down simply mid-single digits subsequent quarter.

We’re nonetheless seeing good quantity. We expect a number of the demand that we anticipated to materialize in PC and smartphone has moved to the proper a few quarters. I do not assume that is any secret. The {industry} most likely overproduced slightly bit an excessive amount of.

We do not see a giant drop within the quantity. We see nonetheless good discussions with our clients. It is simply the market’s oversupplied proper now. So, we noticed some pricing headwinds, particularly as we transfer by the quarter, which we talked about.

Going ahead, we anticipate pricing headwinds subsequent quarter, however we anticipate them to be decrease than we noticed this quarter. So, we really feel like this can be a pause, however we’re additionally going to take motion, as we talked up to now, this new period of NAND, we’ll be rather more conscious of the demand indicators we see out there and alter our manufacturing. So, we’ll go forward and do this and take slightly little bit of provide out of the market as we transfer by ’25, and we expect that may assist pricing stabilization coming again quicker. So, I be ok with the place the general enterprise is.

We have had numerous quarters of an up cycle now, actually fairly uncommon whenever you look going — we’ve got a chart right here that goes all the way in which again to ’07 and the sequential value modifications out there, and it’s totally, very uncommon. It isn’t unprecedented to see this many quarters of up in a row with out some down. So, the factor right here now’s simply to stabilize the market, and we’ll do this by the provision aspect, after which we’ll get again to what we expect is a powerful market as we transfer by ’25 and into ’26.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

And C.J., simply to observe on David’s feedback across the spend and the timing. The file date for the distribution will probably be February 12 and the date of the distribution will probably be on or about February 21. After which the shares of SanDisk could be buying and selling within the lively markets shortly after.

C.J. Muse — Analyst

Thanks a lot.

Operator

Thanks. And our subsequent query comes from Aaron Rakers at Wells Fargo. Please go forward.

Aaron Rakers — Analyst

Yeah, thanks for taking the query. Good afternoon as nicely. I assume fascinated by the NAND gross margins, I am questioning if you happen to can unpack if I take into consideration the $20 million to $30 million that you simply talked about as being underutilization costs within the present quarter. If I look again the final time that you simply took capability out, that appears like that is round 10% or 15% of the underutilization costs you took a yr or so in the past.

Is that how I take into consideration how a lot capability out you are taking? I feel the opposite manner of asking it’s, I take a look at a few of your rivals and the information is that they are taking 10-or-so p.c of their bid provide out. Is {that a} honest evaluation of what you guys are doing?

David V. Goeckeler — Chief Govt Officer

Yeah. We’re not going to enter precisely how a lot we’re taking out. That is a dynamic determination we make week over week, month after month as we take a look at the enterprise. I feel unpacking the gross margin is a crucial dialogue as we go into subsequent quarter.

I feel one factor for all of you guys to acknowledge, we’ll see 1 / 4 of price will increase. We managed to that 15% price decline. We talked in regards to the new period of NAND that possibly be extra about 12% as we go ahead over the following a number of years. However we had an excellent begin to the yr in price downs and now we’ll see Q3, we’re really up low single digits.

So, that is a huge impact on gross margin. You had underutilization costs on that, after which some ASP headwinds as nicely. Like I mentioned, as we sit right here in the present day, we see the ASP headwinds to be moderating versus what we noticed this quarter. After which bits down mid-single digits.

So, that type of offers you unpacking slightly bit the gross margin quantity going ahead.

Aaron Rakers — Analyst

Yeah, that is very useful. And simply to type of construct on that’s there any technique to body how we must always take into consideration the underutilization impression into the fiscal fourth quarter? And simply to be clear, is there any threat of stock costs taken based mostly on the present market dynamics? Thanks.

David V. Goeckeler — Chief Govt Officer

I feel you’ll be able to most likely take into consideration This fall, they will come up simply — they will come up slightly bit from the place we have been and what we anticipate in Q3. Perhaps give it some thought possibly 60-40 type of break up or 40-60 type of break up.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. And on the stock, Aaron, look, all of it is dependent upon what pricing does. However as of the tip of Q2, our stock is appropriately acknowledged.

Aaron Rakers — Analyst

OK. Thanks.

David V. Goeckeler — Chief Govt Officer

You are welcome.

Operator

Thanks. And our subsequent query in the present day comes from Wamsi Mohan with Financial institution of America. Please go forward.

Wamsi Mohan — Analyst

Sure, thanks a lot. Dave or Irving, are you able to speak about simply at a excessive stage the place we’re within the HDD cycle total? I feel, Dave, you mentioned in your ready remarks a number of occasions that demand is exceeding provide, but the calendar Q1 information is to be down sequentially barely. So, are you able to assist us unpack if that’s simply seasonality? Is there one thing past that? And the way ought to we take into consideration pricing as we take into consideration 2025 and possibly the utmost quantity of exabytes which you can ship given that offer is so tight on the present time? And I’ve a fast follow-up.

David V. Goeckeler — Chief Govt Officer

I’ll let Irving speak about ’25. I’ve huge confidence on this enterprise and massive confidence in Irving driving it ahead and your complete crew. Sure, going into the following quarter, you are going to see some income down slightly bit on quantity. Look, it has been fairly a run.

I imply, it is — we have got to handle the provision chain, all of the parts. We do have rather more visibility to the place our clients are going. It is simply order stream. We proceed — we’ll proceed to see margin enhancing going into subsequent quarter.

So, structurally, I feel the enterprise is simply in a improbable place. We’re getting extra visibility. We now have growing profitability, and we have got numerous tailwinds from AI, extra demand than provide. However let me let Irving speak about how he sees ’25 enjoying out.

Irving Tan — Govt Vice President, World Operations

Yeah. Thanks, David. As I discussed briefly, we see the outlook for ’25 nonetheless being comparatively sturdy going ahead. And as David talked about, there will probably be some slight variations quarter on quarter, however the outlook for the remainder of the yr is comparatively sturdy.

When it comes to pricing, as Wissam alluded to as nicely, taking a look at pricing to stay steady to barely up for Q3. And by way of exabyte, it is actually a operate of combine. And as we stay up for qualifying our new 32 terabyte drives, that offers us extra capability to offer into the market from an exabyte perspective as nicely.

Wamsi Mohan — Analyst

OK. Nice. Thanks a lot.

David V. Goeckeler — Chief Govt Officer

Thanks, Wamsi.

Wamsi Mohan — Analyst

And as a follow-up, can I simply ask shortly on the NAND aspect? I feel you used the phrase non permanent weak point. And I am simply questioning, as you consider a number of the actions that you take from a provide standpoint, what sort of assumptions are you making round demand restoration, whether or not or not it’s on PC aspect or smartphone aspect, into possibly the second half of the yr? And is that the timeframe whenever you’re pondering that the market will get tight once more? Thanks.

David V. Goeckeler — Chief Govt Officer

Yeah. I imply, we expect as we transfer by ’25, we’ll see — by the point we get executed with ’25, we’ll see PCs models up, we’ll see smartphone models up. Information heart continues to stay sturdy. So, we — on the demand aspect, we see that mid-teens demand for the calendar yr.

We see the market barely undersupplied to that. Fairly frankly, you did not ask the query, however we see a much bigger step up in demand in ’26, however let’s stick with ’25 for now. So, as I mentioned earlier, we nonetheless see good quantity within the enterprise. Discussions with clients are excellent.

We’re simply in a spot proper now the place a few of that demand we thought was going to come back within the PC and smartphone market round this time has been pushed out slightly bit. And so, we’ll make some changes in our provide to assist pricing and we expect we’ll be good as we transfer all through ’25. We’re very optimistic on the place we’re at from after we — once more, we return and we take a look at total wafer spending on this market. We expect that the market is about up in a really sturdy place.

As I mentioned earlier, we have had an excellent run of value will increase, virtually unprecedented. While you return during the last decade, it isn’t shocking we might see some type of pause like this. And we’ll — I feel what’s completely different this time is we’ll alter provide rather more shortly than we’ve got up to now to reply to this and speed up bringing the market again to extra of an equilibrium to an undersupplied place.

Wamsi Mohan — Analyst

Thanks a lot.

David V. Goeckeler — Chief Govt Officer

Thanks, Wamsi.

Operator

Thanks. And our subsequent query comes from Tim Arcuri with UBS. Please go forward.

Unknown speaker — — Analyst

Hey, guys. That is Aaryan on for Tim. It’s one factor whenever you and Seagate had extreme capability, it looks like you actually cannot ship a lot if any greater than the 13.5 million drives your delivery and now passing above this 10-year pattern line. I might assume that possibly there’s extra urgency from the purchasers on getting in orders for BTO.

So, any change in conduct? After which I’ve a follow-up after.

Irving Tan — Govt Vice President, World Operations

Yeah. We have not seen any change in conduct. As you are conscious, one of many issues we pivoted to is basically shifting to BTO, that is giving us much more visibility on a 52-week time horizon in order that we are able to higher plan with our clients and guarantee we’ve got the proper provide demand stability, and that is actually guaranteeing that there is not a buildup of stock inside our buyer setting.

Unknown speaker — — Analyst

Thanks. After which on the — my follow-up on the NAND aspect. The NAND cycle simply bought began and we turned capability again on. Now, we’re going by one other correction on the buyer aspect.

And so, what would you do as soon as this can be a stand-alone enterprise? Are you continue to going to hold all that market share? Or will you do extra like what you probably did within the HDD and handle to driving margins greater with much less concerning the share? Thanks.

David V. Goeckeler — Chief Govt Officer

Yeah, that is a query for our Investor Day on the eleventh, and we’ll speak about that in fairly a little bit of element. So, we’ll have so much to say about that right here in one other week and a half. However I feel the way in which we’re managing the enterprise now’s what you are going to see extra of going ahead. We have been very clear.

We put out a giant webcast on the brand new period of NAND about how we considered this enterprise, the way it’s modified within the 3D period, how we — our perception, and the way it must be managed. And I feel you are seeing that play out in actual time right here this quarter. And we’ll speak about that in additional element right here in a few weeks, and we’ll hope to see you in New York.

Unknown speaker — — Analyst

Superior. Thanks, guys.

David V. Goeckeler — Chief Govt Officer

Thanks. Recognize it.

Operator

Thanks. [Operator instructions] Right this moment’s subsequent query comes from Joe Moore of Morgan Stanley. Please go forward.

Joe Moore — Analyst

Nice. Thanks. I’m wondering if you happen to might give us an replace on enterprise solid-state drives. I do know there’s been some choppiness in that section.

Are you continue to monitoring to your targets? And simply how are you doing there?

David V. Goeckeler — Chief Govt Officer

Hey, Joe. Yeah, we’re doing advantageous there. We’re nonetheless monitoring to focus on. There’s some — I feel I mentioned in the course of the quarter, we’re in for a few uneven quarters and I feel that is what we’re seeing.

That was a spotlight final quarter, actually from supporting pricing. We nonetheless be ok with our 15% plus, 15% to twenty% of combine as we’re sitting right here on the midway level by the yr. That is one other factor we’ll have so much to speak about at our Investor Day about type of what our street map appears to be like like in enterprise SSD, however we’re nonetheless seeing sturdy demand there, Joe.

Joe Moore — Analyst

Nice. That is useful. Thanks. After which simply extra of a procedural query, however is there a time the place you may give steering for the 2 companies individually? Does that occur on the Analyst Day? Is it the spin in Kind-10? Or simply how ought to I take into consideration that?

David V. Goeckeler — Chief Govt Officer

Yeah. We’ll discuss extra about that on the Investor Day. We attempt — I feel in Wissam’s ready remarks, he gave you sufficient steering there which you can type of get an excellent concept of what the numbers are going to be, however we’ll reinforce that right here in one other 10 days.

Joe Moore — Analyst

OK. Thanks very a lot.

David V. Goeckeler — Chief Govt Officer

Thanks, Joe.

Operator

Thanks. And our subsequent query in the present day comes from Thomas O’Malley of Barclays. Please go forward.

Tom O’Malley — Analyst

Hey, thanks for taking my query. I simply wished to ask about capex. You are beginning a brand new calendar yr right here, and I am positive you may give us a broader replace on the Analyst Day. However given the discount in utilization and only a broader pause you are seeing, type of a mid-cycle pause within the enterprise, any replace on the way you’re fascinated by spend on the Flash aspect? You talked about expertise transitions.

It sounds just like the SSD enterprise goes by a few lumpy quarters. Simply with all of these components in, any extra shade on how you consider spending on the NAND aspect of the enterprise, significantly? Thanks.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. Hey, Tom, thanks for the query. So, look, there is not any change within the method on capex. As we have mentioned all alongside, we need to keep — stay disciplined in how we deploy the money and capital for the corporate.

Clearly, most likely the following factor over time will probably be simply, sooner or later, ramping the following node. However from an total perspective, there is not any actual change on the pondering. I am fairly positive as we get to Investor Day, David and Luis can have rather more so as to add on that as nicely.

Tom O’Malley — Analyst

Yeah. Useful. After which pivoting to the HDD aspect. So, Seagate has given us some framework for the place they assume their capability type of hit the wall on the HDD aspect, that is about 160 exabytes on a quarterly foundation.

You guys have type of gotten, I consider, on this final quarter to round 175 exabytes. May you assist us perceive the place you guys begin operating right into a wall by way of capability? You’ve got talked about some capability drawdown doubtlessly into the March quarter. However is there an analogous framework that you simply guys go by? Simply traditionally, the market has been slightly bit completely different than you guys being forward by way of the variety of exabyte shipped. So, any type of assist with the place you run right into a wall otherwise you proceed to develop there? Thanks.

Irving Tan — Govt Vice President, World Operations

Yeah. I do not assume we’ll make any touch upon that. We’re fairly centered on guaranteeing we get the proper — we’ve got the proper provide demand stability and persevering with to be very prudent and disciplined in our capital expenditure.

Operator

Thanks. And our subsequent query in the present day comes from Karl Ackerman with BNP Paribas. Please go forward.

Karl Ackerman — Analyst

Sure. Thanks, gents. The final quarter, you launched the 32 terabyte SMR and 26 terabytes CMR with 11 discs. And I feel you famous you’d full {qualifications} in coming quarters.

I feel you have got that starting to ship at two hyperscalers now and maybe a 3rd one is within the means of qualifying. So, I hoped you might focus on the order charges and visibility you see for these high-capacity drives as we take into consideration the sustainability and progress of the HDD enterprise all through ’25. Thanks.

Irving Tan — Govt Vice President, World Operations

Hello. That is Irving. Thanks for the query. As talked about, we see the outlook for nearline persevering with to be wholesome.

As you’ve got alluded to, we anticipate the qualification for our new 32 terabyte SMR and 24 terabyte CMR to be accomplished someday in Q1 of the calendar yr. And I might say our clients are very enthusiastic about these drives, and we’ll present you extra visibility as we transfer ahead.

Karl Ackerman — Analyst

Thanks.

Operator

Thanks. And our subsequent query in the present day comes from Asiya Service provider with Citigroup. Please go forward.

Asiya Service provider — Analyst

Yeah, thanks very a lot. One query we get — I perceive the seasonality right here in March, and I perceive a few quarter the place there’s some variability, however any visibility into the stock ranges right here? After which simply on the hyperscalers, the way you guys are fascinated by it? After which simply the provision chain on the HDD aspect, how are you fascinated by the provision chain having the ability to meet the rising demand that you simply guys are fascinated by? Thanks.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. Thanks for the query. Look, after we speak about Q3 and what we guided may be very a lot — would not essentially point out decrease visibility or greater visibility. We expect we’ve got good visibility of what the stock is doing in our clients and the place the orders search for the following few quarters.

It is only a matter of timing of orders. And so, that is how — type of most likely one of the best ways to consider it. There is not very rather more than that occurring at the least as we see from the place our clients inventories and orders appear like. When it comes to the provision chain, look, we’re working in a tighter provide chain on the onerous drive aspect.

We have mentioned that for the final couple of quarters. I feel we’ve got an awesome operations crew that continues to have the ability to handle to ship to our clients as many merchandise as we are able to, and we’ll proceed to function as such within the subsequent few quarters. The truth that we moved to construct to orders with lots of our clients offers us nice visibility or better visibility than earlier than. And so, that additionally helps within the capability to proceed to ship the merchandise when required, when wanted.

Asiya Service provider — Analyst

Thanks.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

You are welcome.

Operator

Thanks. And our subsequent query comes from Vijay Rakesh with Mizuho. Please go forward.

Vijay Rakesh — Analyst

Yeah. Hello. Simply to observe up on the onerous disk drive aspect. Good numbers there.

However I feel as you progress this capability to create terabyte disks, I feel you are going as much as 11 disks. Do you see the necessity to type of push on the areal density aspect, too, as you see this shifting on HAMR aspect? Any ideas there? And I’ve a follow-up.

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

Yeah. Thanks for the query. Sure, we’re at all times centered on enhancing areal density and efficiency. That is one thing we additionally get a serious carry from our UltraSMR functionality, and we expect that is an enormous aggressive benefit.

And we — clearly, our UltraSMR functionality will probably be extensible at the same time as we transition from our ePMR portfolio finally to our HAMR portfolio as nicely.

Vijay Rakesh — Analyst

Acquired it. After which on the NAND aspect, I do know you talked about giving extra capex steering at Analyst Day. Any ideas on the way you see the pricing margins type of tendencies for the yr? I do know you most likely have not talked about that previously, however —

David V. Goeckeler — Chief Govt Officer

Yeah. We do not discuss an excessive amount of about that. I imply, I feel what — I feel I mentioned I see — going into subsequent quarter, I see — we see some ASP headwinds, however these moderating in depth from what we noticed this quarter. So, that is — it is a good signal as we sit right here in the present day.

And because of this we’re taking the provision actions we’re taking is to assist pricing to get — we’re seeing some headwinds right here. We nonetheless have some — we nonetheless have numerous confidence in demand as we transfer all year long, however we’ll make some changes right here to ensure that we convey the market again into stability and a barely undersupplied spot as shortly as potential to assist pricing and margins within the enterprise.

Vijay Rakesh — Analyst

All proper. Thanks.

David V. Goeckeler — Chief Govt Officer

Thanks.

Operator

Thanks. And our subsequent query in the present day comes from Ananda Baruah with Loop Capital. Please go forward.

Ananda Baruah — Analyst

Yeah. Thanks, guys for taking the query. I will simply preserve it to 1. However Dave, I might like to get your — or any of your view on type of Flash — type of the function of Flash in hyperscale storage, the world that is been type of overwhelmingly represented by [Inaudible], there is a fairly public — it is a fairly large Flash vendor, programs vendor that made it fairly public announcement in December about having a hyperscale win, and that is been a giant matter of dialog over the previous couple of months right here in each companies.

So, I might simply like to get your view on dynamics in that market. That is it for me. Thanks.

David V. Goeckeler — Chief Govt Officer

All proper. Yeah. My place has been fairly steady right here for fairly a while. That is use case pushed.

There’s at all times going to be use circumstances that use Flash. There’s at all times going to be use circumstances that use onerous drives. That blend has been comparatively steady. Perhaps it modifications slightly bit just because Flash is rising quicker.

And also you are likely to see newer use circumstances come for Flash. I feel AI mannequin coaching is an efficient one. That is a really Flash-driven sort use case. Nevertheless, when you begin producing all that knowledge, it is going to return on to onerous drives.

And the onerous drives have a really sturdy street map. As Irving about, very sturdy give attention to areal density, proceed to drive price downs there, super improvements. And so, the arbitrage on the price there’s going to remain the identical for fairly a while. However Flash goes to develop slightly quicker.

Exhausting drives are going to develop. As they are saying, two issues may be true. They’re each true. And we really feel very sturdy about each of them.

So far as onerous drives within the cloud, I will be aware that we simply shipped almost 161 exabytes in 1 / 4 into the cloud. So, this can be a very large at-scale enterprise. There’s at all times going to be use circumstances the place — once more, there’s at all times going to be use circumstances within the hyperscale that come up that may be happy with Flash. We’re very large followers of that, proper? We’re very bullish on Flash as nicely.

It doesn’t suggest it is on the expense of onerous drives. It is simply — that is how we see the market. We have known as that manner for years, and we proceed to see that dynamic enjoying out. It is good for each companies.

I imply, look, let’s take it up a stage. We have got all this AI demand. There’s been numerous dialog about AI within the final a number of days, as a matter of truth, some main improvements in accelerating the adoption of AI. It is an space the place there’s an unbelievable quantity of funding going, which ends up in wonderful improvements.

And as this market continues to speed up, that is going to be nice for each of those companies. It is going to speed up the creation of knowledge. It will increase the worth of knowledge to coach extra fashions, which will increase the quantity of knowledge that will get saved. So, that is going to drive onerous drives dramatically.

As inference strikes to the Edge — bear in mind, we discuss so much about enterprise SSDs. It is a vital, very large market. However NAND is predominantly an Edge enterprise. And as inference strikes to the Edge, it is going to drive an infinite quantity of NAND consumption there as nicely, each in unit progress, capability per unit.

So, we’re very, very bullish on the storage market. And we have seen some nice dynamics right here during the last yr, and we expect that is going to proceed for fairly a while.

Ananda Baruah — Analyst

Thanks for all of that. Actually admire it.

David V. Goeckeler — Chief Govt Officer

Thanks.

Operator

Thanks. And our ultimate query in the present day is from Mark Miller at The Benchmark Firm. Please go forward.

Mark Miller — Analyst

Thanks for the query. I simply was questioning, are you seeing across-the-board provide reductions by your NAND rivals? And in that case, any estimate on how a lot they’re decreasing?

David V. Goeckeler — Chief Govt Officer

I do not — I feel we do not actually speak about what our rivals are doing. We will give attention to speaking about our enterprise. I imply, we have been very clear about what we have been doing. We see this little pause out there.

We have been very, very open about how we’ll handle the enterprise going ahead on this new period of NAND. We have talked so much about that, nearly how costly the nodal transitions are and the way we’ve got to be very disciplined on capex, and we’ve got to be very disciplined about how we provide the market given simply how large the market is now and the way a lot productiveness comes out of those nodal transitions. So, that is the way in which we’re managing the enterprise. We proceed to see good demand all through this yr.

We proceed to see a balanced undersupplied market, and we’ll take some actions simply to ensure that’s the case throughout our portfolio based mostly on what we’re seeing.

Mark Miller — Analyst

Thanks.

David V. Goeckeler — Chief Govt Officer

Thanks.

Operator

Thanks. And this concludes the question-and-answer session. I would like to show it again over to the administration crew for closing remarks.

David V. Goeckeler — Chief Govt Officer

Thanks, everyone, for becoming a member of us. We stay up for seeing all of you in New York right here in a few weeks and speaking about these two companies we really feel excellent about. We have executed the separation during the last yr. And we’re proper right here on the doorstep of launching these as two separate firms, and we stay up for speaking to all of you about that in nice element right here in simply one other 10, 11 days.

So, we stay up for seeing you then. Thanks for becoming a member of us in the present day.

Operator

[Operator signoff]

Period: 0 minutes

Name individuals:

T. Peter Andrew — Vice President, Monetary Planning and Evaluation and Investor Relations

David V. Goeckeler — Chief Govt Officer

Wissam G. Jabre — Govt Vice President, Chief Monetary Officer

David Goeckeler — Chief Govt Officer

C.J. Muse — Analyst

Irving Tan — Govt Vice President, World Operations

Wissam Jabre — Govt Vice President, Chief Monetary Officer

Aaron Rakers — Analyst

Wamsi Mohan — Analyst

Unknown speaker — — Analyst

Joe Moore — Analyst

Tom O’Malley — Analyst

Karl Ackerman — Analyst

Asiya Service provider — Analyst

Vijay Rakesh — Analyst

Ananda Baruah — Analyst

Mark Miller — Analyst

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