Summary of Western Digital Conference Call Company Overview - **Company**: Western Digital (NasdaqGS: WDC) - **Event**: Goldman Sachs Communicopia and Technology Conference - **Date**: September 10, 2025 Key Industry Insights - **Demand-Supply Dynamics**: The demand environment is strong and improving, with a misconception about a significant demand-supply imbalance. Supply is tight, but Western Digital believes it can meet demand effectively [6][9] - **Growth Forecast**: The storage business is projected to grow at a compound annual growth rate (CAGR) of 15% to 23% from 2024 to 2028, driven by AI advancements [7] - **Areal Density**: Growth will primarily come from increasing areal density rather than unit capacity. Current average capacity is around 21-22 terabytes per unit, with plans to increase to 36 and eventually 44 terabytes [8][12] Pricing and Market Conditions - **Stable Pricing Environment**: The average selling price (ASP) per terabyte has remained stable, with fluctuations of about ±1% over recent quarters. Long-term agreements (LTAs) with major customers provide visibility into pricing stability [13][14] - **Customer Commitments**: Four out of five largest customers have purchase orders for all of fiscal 2026, indicating strong demand and pricing stability [14] Competitive Landscape - **HDD vs. SSD**: Approximately 80% of installed storage capacity is hard disk drives (HDD), with HDDs being six times lower in acquisition cost and 3.6 times lower in total cost of ownership (TCO) compared to SSDs. Both HDD and SSD markets are growing [19][20][21] - **Market Share**: Western Digital is focused on customer relationships rather than market share, emphasizing quality and reliability in their products [22][23] Technology and Product Development - **EPMR and HAMR Technologies**: Ultra-SMR technology accounts for 40-45% of nearline shipments, expected to rise to 50% by the end of 2025. The next generation of EPMR is set for qualification in 2026, with HAMR technology ramping in 2027 [24][25][28][30] - **Quality Assurance**: Emphasis on ensuring quality and reliability before ramping up production of new technologies [27][30] Financial Performance - **Revenue Composition**: Cloud business constitutes approximately 90% of total revenue, while client and consumer segments account for about 10%. The latter is expected to grow but at a slower rate than cloud [33] - **Gross Margins**: Current gross margins are in the low 40s, with potential for further improvement driven by stable pricing, cost reductions, and a favorable product mix [37][38][39] - **Debt and Capital Return**: The company has a net debt of $2.6 billion with a target leverage ratio of 1 to 1.5. Plans for capital return include a dividend program and a $2 billion share buyback initiative [48][50] Strategic Outlook - **Long-term Growth**: Western Digital is positioned well for future growth, particularly in the AI and data-centric cloud markets, with strong customer engagements and a focus on technological advancements [32][34][43]

Core Viewpoint - Western Digital (WDC) has gained significant attention in the market, with a notable stock performance increase of +24.5% over the past month, outperforming the S&P 500 composite and the Computer-Storage Devices industry [2][16] Earnings Estimates - For the current quarter, Western Digital is projected to report earnings of $1.57 per share, reflecting a decrease of -11.8% year-over-year, with the consensus estimate remaining unchanged [5] - The consensus earnings estimate for the current fiscal year stands at $6.5, indicating a growth of +31.9% from the previous year, also unchanged over the last 30 days [5] - For the next fiscal year, the earnings estimate is $7.11, suggesting a growth of +9.4% compared to the prior year, with no changes in the estimate over the past month [6] Revenue Growth Forecast - The consensus sales estimate for the current quarter is $2.7 billion, indicating a significant decline of -34% year-over-year [9] - For the current fiscal year, revenue estimates are $10.92 billion, reflecting a decrease of -17.8%, while the next fiscal year's estimate of $11.28 billion shows a modest increase of +3.3% [9] Last Reported Results and Surprise History - In the last reported quarter, Western Digital achieved revenues of $2.61 billion, down -30.8% year-over-year, with an EPS of $1.66 compared to $1.44 a year ago [10] - The company exceeded the Zacks Consensus Estimate for revenues by +6.13% and for EPS by +12.16% [10] - Western Digital has consistently beaten consensus EPS estimates in the last four quarters and topped revenue estimates three times during this period [11] Valuation - Western Digital holds a Zacks Value Style Score of C, indicating that it is trading at par with its peers [15] - The assessment of valuation multiples such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) is essential for determining the stock's fair value relative to its historical values and peers [13][14] Bottom Line - The Zacks Rank 1 (Strong Buy) for Western Digital suggests a potential for outperforming the broader market in the near term, despite the mixed signals from earnings and revenue estimates [7][16]

Core Viewpoint - Western Digital (WDC.US) has seen its stock price rise over 4% to a record high of $89.59, driven by a price surge in the storage industry due to supply-demand imbalances and strong demand from AI applications [1] Industry Summary - The storage industry is currently experiencing a price increase, primarily influenced by production cuts leading to supply-demand imbalances and robust demand from artificial intelligence applications [1] - The demand for storage is surging in sectors such as data centers, AI servers, AI PCs, and smart vehicles, prompting storage chip manufacturers to implement production cuts and price hikes to adapt to market changes [1] - The recovery trend in the storage market is expected to continue until 2025 or even 2026 [1] Company Summary - Morgan Stanley has maintained a buy rating on Western Digital and raised its target price from $92 to $99 [1]

Group 1 - Western Digital (WDC.US) shares rose over 4% to $89.59, reaching a new all-time high [1] - The storage industry is experiencing a price increase driven by supply-demand imbalance due to production cuts and strong demand from AI applications, particularly in NAND flash and DRAM products [1] - This upward trend in the storage market is expected to continue until 2025 or even 2026 [1] Group 2 - There is a surge in demand for storage in data centers, AI servers, AI PCs, and smart vehicles, prompting storage chip manufacturers to implement production cuts and price hikes [1] - Morgan Stanley maintained a buy rating on Western Digital and raised its target price from $92 to $99 [1]

Group 1 - The event is the first day of the Global TMT conference, indicating a busy schedule and high engagement [1] - Key participants include Irving and Kris from WDC, along with WDC's Investor Relations team present in the audience [2]

Summary of Western Digital (WDC) 2025 Conference Call Company Overview - Western Digital is now a pure-play hard drive company focused on data storage, particularly in the cloud, with 90% of revenue from cloud services and 10% from client and consumer segments [5][6] Core Strategic Priorities 1. **Growth Initiatives**: - Engaging more with hyperscale customers to understand their architectures and use cases [6] - Product leadership through advanced technologies like EPMR and upcoming HAMR [7] - Continuous innovation in platform business relevant for neocloud players and OEMs [8] 2. **Operational Excellence**: - Focus on flawless execution across all business facets, including process re-engineering and technology adoption [8] - Cultural change emphasizing individual performance and results [9] Financial Performance - The third quarter showed a revenue increase of 30% with significant bottom-line growth [12] - Baseline growth projected at 15% exabyte CAGR, with AI uplift case showing 23% growth [13] - Firm purchase orders (POs) secured with top customers extending into fiscal year 2027 [14][15] Demand and Market Dynamics - Demand for hard drives is central to AI growth, with customers recognizing HDDs as critical for their operations [15] - The company is experiencing a multi-quarter growth cycle driven by AI and cloud demand [16] Risk Mitigation Strategies - Focus on supporting capacity growth through improvements in aerial density and reliable production [17][18] - Investments in head and media facilities to enhance production capabilities [18] Tariffs and Supply Chain - Currently not impacted by tariffs due to classification as a semiconductor, with manufacturing capabilities in the U.S. [20] - Ongoing efforts to mitigate potential tariff impacts through supply chain management [20] Customer Engagement and Demand Visibility - Strong partnerships with customers provide early visibility into demand, reducing uncertainty [23] - The company utilizes machine learning algorithms to assess demand signals beyond customer input [22] AI Workloads and Storage Economics - AI workloads require significant storage, with 80% of data in hyperscale data centers stored on HDDs [26] - HDDs are essential for storing models and associated data during AI training processes [25] Competitive Landscape - Despite the rise of SSDs, HDDs remain vital due to their cost-effectiveness and capacity advantages [31] - The company maintains a 6x delta in acquisition costs compared to flash storage, ensuring HDDs remain competitive [31] Financial Health and Shareholder Returns - Strong free cash flow and a healthy balance sheet with $4.7 billion gross debt and $2.1 billion cash [64] - Commitment to returning excess cash to shareholders through dividends and share buybacks [64] Margins and Cost Management - Gross margins have improved from low 30s to mid-40s, with further room for growth [51][53] - Focus on driving down costs per terabyte through higher capacity drives and technology advancements [52] Technology Roadmap - The introduction of UltraSMR technology provides a 20% capacity uplift over standard drives [55] - Ongoing development of HAMR technology aims to enhance capacity and reliability [46] Conclusion - Western Digital is strategically positioned to capitalize on the growing demand for data storage driven by cloud and AI, with a strong focus on customer engagement, operational excellence, and innovative technology solutions [69]

Investment Rating - The report maintains a constructive outlook on shares of Amphenol Corp (APH), Dell Technologies (DELL), Corning Inc (GLW), Hewlett Packard Enterprise (HPE), and the memory/disk drive sector including Seagate Technology (STX), Western Digital Corp (WDC), and SanDisk Corp (SNDK) [4]. Core Insights - The upcoming Citi's 33rd annual Global Technology Conference will feature over 240 technology companies, focusing on updates regarding customer and enterprise demand dynamics, as well as supply chain conditions [1]. - Key investor questions include the impact of Generative AI on infrastructure spending, enterprise spending intentions, consumer spending trends, margin impacts from rising component costs, and capital allocation strategies [2][3]. Company Summaries - **Amphenol Corp (APH)**: Current price at $109.36 with a market cap of $133.52 billion. The target price is set at $125.00 with an expected share price return of 14.3% [7]. - **CDW Corp (CDW)**: Current price at $167.00 with a market cap of $21.89 billion. The target price is $200.00 with an expected share price return of 19.8% [7]. - **Corning Inc (GLW)**: Current price at $65.77 with a market cap of $56.34 billion. The target price is $72.00 with an expected share price return of 9.5% [7]. - **Dell Technologies (DELL)**: Current price at $130.84 with a market cap of $88.50 billion. The target price is $160.00 with an expected share price return of 22.3% [7]. - **Hewlett Packard Enterprise (HPE)**: Current price at $22.45 with a market cap of $29.46 billion. The target price is $25.00 with an expected share price return of 11.4% [7]. - **SanDisk Corp (SNDK)**: Current price at $46.37 with a market cap of $6.76 billion. The target price is $57.00 with an expected share price return of 22.9% [7]. - **Seagate Technology (STX)**: Current price at $159.19 with a market cap of $33.86 billion. The target price is $167.00 with an expected share price return of 4.9% [7]. - **Western Digital Corp (WDC)**: Current price at $76.97 with a market cap of $26.70 billion. The target price is $88.00 with an expected share price return of 14.3% [7].

Company Overview - Western Digital (WDC) closed at $80.34, down 2.07% from the previous trading session, underperforming the S&P 500's loss of 0.64% [1] - Over the past month, WDC shares gained 4.26%, outperforming the Computer and Technology sector's gain of 2.91% and the S&P 500's gain of 1.91% [1] Upcoming Earnings - Analysts expect Western Digital to report earnings of $1.57 per share, reflecting a year-over-year decline of 11.8% [2] - The consensus estimate projects revenue of $2.7 billion, indicating a 34.03% decrease from the same quarter last year [2] Fiscal Year Estimates - For the entire fiscal year, Zacks Consensus Estimates predict earnings of $6.5 per share and revenue of $10.92 billion, representing changes of +31.85% and -17.76% respectively from the previous year [3] - Recent changes in analyst estimates may indicate shifting business trends, with positive revisions suggesting analyst optimism [3] Zacks Rank and Performance - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), has shown that 1 stocks have contributed an average annual return of +25% since 1988 [5] - Western Digital currently holds a Zacks Rank of 1 (Strong Buy), with a 9.55% rise in the Zacks Consensus EPS estimate over the past month [5] Valuation Metrics - Western Digital is trading at a Forward P/E ratio of 12.62, which is lower than its industry's Forward P/E of 15.14 [6] - The company has a PEG ratio of 0.91, compared to the average PEG ratio of 2.32 for the Computer-Storage Devices industry [6] Industry Context - The Computer-Storage Devices industry is part of the Computer and Technology sector, holding a Zacks Industry Rank of 39, placing it in the top 16% of over 250 industries [7] - Research indicates that the top 50% rated industries outperform the bottom half by a factor of 2 to 1 [7]

Core Insights - Western Digital Corporation (WDC) has achieved a significant turnaround in profitability, with non-GAAP gross margin increasing from 28.7% in fiscal 2024 to 39.4% in fiscal 2025, and operating income rising 578% to $2,326 million from $343 million [1][7] - The recovery is attributed to cyclical cloud demand, cost control, and strategic decisions such as spinning off the SanDisk flash business, enhancing margins and cash flow [1][7] - The company anticipates continued revenue growth, projecting non-GAAP revenues of $2.7 billion, a 22% increase year over year, and non-GAAP earnings of $1.54 for the next quarter [4][7] Financial Performance - In the fiscal fourth quarter, WDC reported a non-GAAP gross margin of 41.3%, up 610 basis points year over year, exceeding guidance [3] - Non-GAAP operating expenses decreased by 16% year over year to $345 million, while non-GAAP operating income rose 147% year over year to $732 million [3] - The company shipped 190 exabytes in the fourth quarter, a 32% year-over-year increase, driven by demand for nearline drives and high-capacity products [2] Market Position and Technology - WDC maintains a strong position in the global HDD market, with its ePMR and UltraSMR technologies offering reliability and low total cost of ownership [2] - The company is advancing next-generation HAMR drives, expected to qualify in 2027, and anticipates continued demand for high-capacity drives [2] - The competitive landscape includes major players like Seagate, Pure Storage, and others, with pricing pressure being a persistent concern [5] Competitive Analysis - Seagate reported a 32% year-over-year increase in HDD revenues, with a non-GAAP gross margin of 37.9% [6] - Pure Storage, focusing on all-flash storage solutions, expects a revenue increase of 10.6% year over year for the fiscal second quarter [8] Stock Performance and Valuation - WDC shares have gained 26.1% over the past year, outperforming the Zacks Computer-Storage Devices industry, which fell by 7.1% [9] - The forward price/earnings ratio for WDC is 12.89X, lower than the industry average of 17.86X [10] - The Zacks Consensus Estimate for WDC's earnings for fiscal 2026 has been revised up 14% to $6.50 [11]

Core Viewpoint - Western Digital (WDC) has shown strong stock performance, with a 14.8% increase over the past month and a 32.9% gain since the start of the year, outperforming both the Zacks Computer and Technology sector and the Zacks Computer-Storage Devices industry [1] Financial Performance - Western Digital has consistently exceeded earnings expectations, reporting an EPS of $1.66 against a consensus estimate of $1.48 in its last earnings report on July 30, 2025 [2] - For the current fiscal year, the company is projected to achieve earnings of $6.5 per share on revenues of $10.92 billion, reflecting a 31.85% increase in EPS but a 17.76% decrease in revenues [3] - The next fiscal year forecasts earnings of $7.11 per share on revenues of $11.28 billion, indicating year-over-year changes of 9.38% in EPS and 3.32% in revenues [3] Valuation Metrics - The stock currently trades at 12.2 times the current fiscal year EPS estimates, below the peer industry average of 14.4 times [7] - On a trailing cash flow basis, Western Digital trades at 13.1 times, compared to the peer group's average of 15.3 times [7] - The company has a PEG ratio of 0.88, which does not place it among the top tier of stocks from a value perspective [7] Style Scores and Zacks Rank - Western Digital has a Value Score of B, a Growth Score of B, and a Momentum Score of D, resulting in a combined VGM Score of B [6] - The stock holds a Zacks Rank of 1 (Strong Buy), supported by a solid earnings estimate revision trend, indicating potential for further gains [8]