WESTERN DIGITAL FOURTH FISCAL QUARTER ENDED JULY 3, 2015 CONFERENCE CALL REMARKS, 7/29/15

Special Note

Statements in these posted remarks that relate to future results and events, and other forward-looking statements in these remarks, are based on Western Digital Corporation's current expectations. Risks and uncertainties may cause actual results to differ materially from those currently expected. These potential risks and uncertainties include:

  • volatility in global economic conditions;
  • business conditions and growth in the storage ecosystem;
  • pricing trends and fluctuations in average selling prices;
  • the availability and cost of commodity materials and specialized product components;
  • actions by competitors;
  • unexpected advances in competing technologies;
  • our development and introduction of products based on new technologies and expansion into new data storage markets; and
  • other factors listed in our periodic SEC filings and on this website in Risk Factors.

In addition, these posted remarks include references to non-GAAP financial measures. Reconciliations of the differences between the non-GAAP measures provided in these remarks to the comparable GAAP financial measures are included in the quarterly fact sheet posted in this Investor Relations section of our website.


Steve Milligan - President & Chief Executive Officer

Good afternoon and thank you for joining us. After my opening remarks, Olivier Leonetti will provide additional commentary on our June quarter performance and our outlook for the September quarter. 

Demand for our fourth fiscal quarter was lower than expected given a weak PC market. In that context, I am satisfied with our performance. We reported revenues of $3.2 billion, non-GAAP gross margins of 29.8 percent, and diluted earnings per share of $1.51. Our storage shipments for the June quarter were 56 exabytes, up two percent year-over-year. 

Our results reflect strong product and technology positioning, coupled with solid execution.

Our enterprise SSD revenue more than doubled year-over-year to $244 million, demonstrating the continued success and broadening customer acceptance of our leading SAS SSD products.

We expanded our footprint in the enterprise SSD space with the initial ramp of our new Ultrastar PCIe NVMe offering. It has been qualified with several leading customers and we expect revenue from this product to increase throughout fiscal 2016.

We saw strong demand for our high capacity helium and 15K RPM 2.5-inch performance hard drives.

Revenue from our video surveillance hard drives continued its rapid growth as we expanded our lineup of these purpose-built solutions, and

We continued to see positive market reaction to the value proposition of our new Active Archive system.

Our view of persistent data growth remains intact driven by mobility and the cloud. The outlook for our enterprise storage business remains healthy and we believe we are well positioned to address this growing market space.

Regarding PC market demand, we believe it is prudent to remain cautious in the near term, given the timing of the Windows10 and Skylake launches. That being said, we are seeing early signs of market stabilization, leading us to believe that PC market demand could pick up toward the end of this calendar year. A more stable PC market demand environment coupled with continued strength in our enterprise business provides the opportunity for improving financial performance as we move through the fiscal year.

In the meantime, we will continue to be disciplined in the management of our business while being ready to address unanticipated upside if it materializes.

I would like to comment on the status of our discussions with China’s Ministry of Commerce. Since our last earnings call, we believe we have made meaningful progress. We have met with MOFCOM several times to discuss their review process and a potential timetable for them to complete their work. We have submitted a comprehensive report on the current market, which we believe shows that the storage ecosystem has evolved significantly in the last 3 years and that lifting the hold separate restriction will enhance competition, increase innovation and benefit customers. We have also met with several other stakeholders in China and shared our views on the benefits of lifting the hold separate. Based on our conversations with MOFCOM, we believe that they are working steadily on several fronts and we are hopeful that they can conclude their evaluation of our application to lift the hold separate in the near future.

Olivier will now provide a summary of our June quarter performance and our outlook.

Olivier Leonetti - Executive VP Finance & Chief Financial Officer

Thank you, Steve.

Our revenue for the June quarter was $3.2 billion dollars.

We shipped a total of 48.5 million hard drives at an average selling price of $60 dollars.

Our non-GAAP gross margin was 29.8 percent and operating expenses totaled $560 million dollars. 

Tax expense for the June quarter was $27 million dollars, or 7 percent of non-GAAP pre-tax income.

On a non GAAP basis, net income was $356 million dollars, or one dollar and fifty-one cents per share.

In the June quarter we generated $488 million dollars in cash from operations and our free cash flow totaled $332 million dollars.

Our CAPEX totaled $156 million dollars or 5 percent of revenue.

We repurchased 2.0 million shares for $198 million dollars.

We also declared a dividend in the amount of 50 cents per share.

We closed year-end with total cash and cash equivalents of $5.0 billion dollars, of which approximately $700 million dollars was held in the U.S.

I will now provide our guidance for the September quarter. 

We expect:

  • Revenue to be in the range of $3.2 billion dollars to $3.3 billion dollars.

Excluding the amortization of intangibles, we expect

  • Gross margin percentage to be roughly flat with our June quarter
  • Operating expenses of approximately $575 million dollars
  • And accordingly, we estimate non-GAAP earnings per share between one dollar and fifty cents and one dollar and sixty cents.

Operator, we are now ready to open the call for questions.

CLOSING REMARKS:
Thank you again for joining us today. In closing, I want to thank all of our employees and suppliers for their commitment and outstanding execution and our customers for their continued business. Thanks so much.