• Revenue: $4.3 billion, up 5% sequentially and 41% year-over-year.
• Non-GAAP Gross Margin: 35.9%, down 2.6 percentage points sequentially.
• Non-GAAP Earnings Per Share: $1.77.
• Cloud Revenue: $2.3 billion, representing 55% of total revenue, up 6% sequentially.
• Client Revenue: $1.2 billion, representing 27% of total revenue, down 3% sequentially.
• Consumer Revenue: $0.8 billion, representing 18% of total revenue, up 14% sequentially.
• Flash Revenue: $1.9 billion, flat sequentially, up 13% year-over-year.
• HDD Revenue: $2.4 billion, up 9% sequentially and 76% year-over-year.
• Operating Income: $864 million, down 2% sequentially.
• Operating Cash Flow: $403 million.
• Free Cash Flow: $335 million.
• Gross Debt Outstanding: $7.4 billion.
• Cash and Cash Equivalents: $2.3 billion.

• Warning! GuruFocus has detected 5 Warning Signs with WDC.

Release Date: January 29, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Western Digital Corp (NASDAQ:WDC) reported a revenue of $4.3 billion for the second fiscal quarter, marking a 5% sequential increase and a 41% year-over-year growth.
• The HDD business achieved record gross margins and data center revenue hit an all-time high, driven by strong demand for nearline storage solutions.
• The company is in the final stages of separating its flash and HDD businesses, with key milestones like Form 10 filing and financing activities completed.
• Western Digital Corp (NASDAQ:WDC) is strategically positioned to capitalize on long-term storage demand driven by the AI data cycle.
• The company has seen a 50% sequential growth in external SSD drive shipments, indicating strong consumer demand and successful product launches.

Negative Points

• The flash segment is facing temporary headwinds due to pricing pressure and oversupply, leading to a sequential decline in profitability.
• Gross margin for the fiscal second quarter was below guidance, impacted by pricing pressure in the flash segment.
• Western Digital Corp (NASDAQ:WDC) anticipates a sequential revenue decline in the fiscal third quarter due to lower volume in both flash and HDD segments.
• The company is experiencing underutilization charges in the flash segment as it manages supply in response to ongoing inventory adjustments.
• There is a mid-cycle pause in the flash market, with expectations of continued pricing headwinds and lower bit shipments in the near term.

Q & A Highlights

Q: Can you explain the sequential decline in HDD for the March quarter? Is it due to lower client and consumer units, or is there a pause in cloud demand? A: Irving Tan, Executive Vice President for Global Operations, explained that the decline is due to quarter-on-quarter variations as they support customers with deployment timing and manage supply-demand tightness. The overall business outlook remains healthy.

Q: What gives you confidence that the current situation is just a mid-cycle pause for NAND, and are there any regulatory hurdles for the NAND spin-off? A: David Goeckeler, CEO, stated that they are on track with the spin-off, with key dates approaching. He noted that while there are pricing headwinds, the volume remains strong, and they are adjusting production to stabilize the market. Wissam Jabre, CFO, added that the spin-off is scheduled for February 21.

Q: Can you provide more details on the NAND gross margins and underutilization charges? A: David Goeckeler mentioned that they expect a quarter of cost increases, with underutilization charges impacting gross margins. They anticipate ASP headwinds to moderate next quarter, with bits down mid-single digits.

Q: How do you view the HDD cycle and pricing trends for 2025? A: Irving Tan expressed confidence in the HDD business, noting robust demand and stable to slightly up pricing for Q3. They are qualifying new 32-terabyte drives, which will enhance capacity.

Q: What is your perspective on the role of flash in hyperscale storage, especially with recent announcements from competitors? A: David Goeckeler emphasized that storage needs are use-case driven, with both flash and HDD having stable roles. He highlighted that AI-driven demand will benefit both storage types, with flash growing faster but not at the expense of HDD.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.