Western Digital(WDC)2025-01-31 00:53Financial Performance - Revenue for the second quarter of fiscal 2025 reached $4,285 million, a 41% increase from $3,032 million in the same period last year[174]. - Gross profit for the first half of fiscal 2025 was $3,067 million, representing a 419% increase compared to $591 million in the prior year[176]. - The company reported a net income of $594 million for the second quarter, a significant turnaround from a net loss of $287 million in the same quarter last year, marking a 307% improvement[174]. - Operating income for the first half of fiscal 2025 was $1,594 million, compared to an operating loss of $806 million in the same period last year, reflecting a 298% increase[176]. - Consolidated net revenue for the three months ended December 27, 2024, was $4,285 million, a 41.3% increase from $3,032 million in the prior year[1][2]. - The Obligor Group reported net sales of $2.905 billion for the six months ended December 27, 2024, with a gross profit of $1.141 billion[234]. - The Obligor Group's net income for the six months ended December 27, 2024, was $52 million, a significant improvement compared to a net loss of $1.211 billion for the year ended June 28, 2024[234]. Revenue Breakdown - HDD revenue increased by 76% for the three months ended December 27, 2024, driven by a 93% increase in exabytes sold, despite an 8% decline in average selling prices per gigabyte[3][4]. - Flash revenue rose by 13% for the three months ended December 27, 2024, reflecting a 14% increase in average selling prices per gigabyte[5][6]. - Cloud revenue surged by 119% for the three months ended December 27, 2024, with a 114% increase in exabytes sold[7][8]. - Consolidated gross profit increased by $1.02 billion for the three months ended December 27, 2024, primarily due to higher product shipments and improved pricing[9][10]. - Gross margin for HDD improved by approximately 14 percentage points year over year for the three months ended December 27, 2024[11]. Expenses and Cost Management - Research and development expenses increased to $1,021 million for the first half of fiscal 2025, up 17% from $875 million in the prior year[176]. - R&D expenses increased by $58 million for the three months ended December 27, 2024, driven by higher variable compensation and increased headcount[12]. - SG&A expenses rose by $40 million for the three months ended December 27, 2024, primarily due to increased compensation and legal fees[13]. - The company experienced a supply-demand imbalance in the first half of 2024, leading to reduced shipments and pricing pressures, prompting cost-reduction measures[167]. - The company anticipates a modest reduction in annual operating expenses and capital expenditures due to a new five-year Supply Agreement with SDSS, committing to a minimum of $550 million annually[171]. Business Strategy and Separation - The company plans to separate its HDD and Flash business units, with an expected distribution of 80.1% of Sandisk Corporation shares to common stockholders on or about February 21, 2025[166]. - The company plans to enter into an amendment with lenders to facilitate the separation of its HDD and Flash business units, which may adjust certain commitments under existing loan agreements[231]. Cash Flow and Capital Expenditures - Net cash provided by operating activities was $437 million for the six months ended December 27, 2024, a significant improvement from a net cash used of $(718) million in the same period in 2023[206]. - Capital expenditures were reduced to approximately $825 million in 2024 from approximately $2.22 billion in 2023, reflecting a disciplined approach to capital investments[209]. - The company expects cash capital expenditures in 2025 to be higher than in 2024 but remain below 2023 expenditures[209]. - Net cash provided by investing activities for the six months ended December 27, 2024, included $191 million in net proceeds from the sale of a majority interest in a subsidiary[216]. - During the six months ended December 27, 2024, net cash used in financing activities was primarily due to $225 million for repayment of amounts borrowed under the revolving credit facility[217]. Debt and Financial Obligations - As of December 27, 2024, the total long-term debt, including current portion, was $7.413 billion, with interest on debt amounting to $848 million[221]. - The company had commitments related to Flash Ventures totaling $4.442 billion, with $1.318 billion due in the remaining six months of 2025[221]. - The company issued $1.60 billion of convertible senior notes in November 2023, maturing on November 15, 2028, with an annual interest rate of 3.00%[228]. - The company had $2.25 billion available for borrowing under its revolving credit facility maturing in January 2027[230]. - The company is in compliance with financial leverage ratio covenants as of December 27, 2024[230]. Tax and Regulatory Matters - Income tax expense for the three months ended December 27, 2024, was $147 million, resulting in an effective tax rate of 20%, compared to an effective tax rate of (11)% for the same period in 2023[202]. - The effective tax rate for the six months ended December 29, 2023, was impacted by a net decrease of $30 million to the liability for unrecognized tax benefits[203]. - The company expects to realize tax savings of approximately $166 million from reductions in mandatory deemed repatriation tax obligations and interest deductions in future years[224]. - As of December 27, 2024, the estimated mandatory deemed repatriation tax obligation was $331 million, expected to be paid within the next twelve months[238]. Market and Risk Management - The company expects long-term market improvements driven by digital transformation and artificial intelligence data-cycle advancements[168]. - There have been no material changes to the company's market risk during the six months ended December 27, 2024[247]. - The company uses foreign exchange contracts to hedge against fluctuations in foreign currency for operating expenses and product costs[240]. - A hypothetical 10% adverse movement in foreign currency exchange rates relative to the U.S. dollar would result in a foreign exchange fair value loss of $239 million[248]. - The outstanding balance on the company's variable rate debt was $2.5 billion as of December 27, 2024, and a one percent increase in the variable interest rate would increase annual interest expense by $25 million[249]. Accounting and Compliance - The financial statements are prepared in accordance with U.S. GAAP, requiring judgments and estimates that may materially impact reported amounts[244]. - There have been no material changes in critical accounting policies and estimates from those disclosed in the previous Annual Report[245]. - The company maintains director and officer insurance to cover certain liabilities arising from indemnification agreements[241]. - The company has not incurred material costs from indemnification obligations historically[242].