Revenue Performance - Revenue for the first quarter of fiscal 2025 was $4,095 million, a 49% increase from $2,750 million in the same period last year[163]. - HDD revenue increased by 85% year-over-year, driven by a 107% increase in exabytes sold, primarily from higher shipments of high-capacity enterprise drives[168]. - Flash revenue rose by 21% year-over-year, reflecting a 39% increase in average selling prices per gigabyte, despite a 12% decrease in exabytes sold[170]. - Cloud revenue surged by 153% year-over-year, with a 140% increase in exabytes sold, driven by higher shipments of high-capacity enterprise HDD products[171]. - Client revenue increased by 5% for the three months ended September 27, 2024, driven by a 33% increase in average selling prices per gigabyte, despite a 20% decrease in exabytes sold[172]. - Consumer revenue declined by 7% for the three months ended September 27, 2024, due to a 15% decrease in exabytes sold, partially offset by a 10% increase in average selling prices per gigabyte[173]. - The Obligor Group reported net sales of $1.722 billion for the three months ended September 27, 2024, with a gross profit of $660 million[221]. Profitability - Gross profit for the first quarter was $1,551 million, compared to $99 million in the same period last year, resulting in a gross margin of 37.9%[163]. - Consolidated gross profit increased by $1.45 billion for the three months ended September 27, 2024, with gross margin increasing by 34 percentage points year over year[177]. - HDD gross margin increased by 15 percentage points year over year, while Flash gross margin increased by 49 percentage points year over year[178][179]. - Operating income for the first quarter was $742 million, a significant improvement from an operating loss of $596 million in the prior year[163]. Expenses - Research and development expenses increased to $519 million, up 20% from $431 million in the same quarter last year[163]. - Research and development (R&D) expense increased by $88 million for the three months ended September 27, 2024, driven by higher variable compensation and increased headcount[180]. - Selling, general and administrative (SG&A) expense increased by $35 million for the three months ended September 27, 2024, primarily due to higher compensation and legal fees[181]. Strategic Initiatives - The company announced a strategic plan to separate its HDD and Flash business units into two independent public companies, with the soft-spin phase beginning in Q2 of fiscal 2025[154]. - A majority interest sale of 80% in a Flash manufacturing subsidiary was completed, with a 5-year supply agreement worth a minimum of $550 million[158]. - The company expects a modest reduction in annual operating expenses and capital expenditures related to the transition to a contract manufacturing model[159]. Cash Flow and Financial Position - Net cash provided by operating activities was $34 million for the three months ended September 27, 2024, compared to a net cash used of $626 million in the prior year[192]. - The cash conversion cycle improved to 107 days for the three months ended September 27, 2024, compared to 114 days in the prior year[200]. - Net cash used in investing activities for Q3 2024 was $96 million in capital expenditures, offset by $47 million from Flash Ventures[202]. - Net cash used in financing activities for Q3 2024 included $188 million for debt repayment and $64 million for taxes on stock awards, partially offset by $150 million from the revolving credit facility[203]. - As of September 27, 2024, the total known material cash requirements amounted to $15.321 billion, including $7.450 billion in long-term debt[206]. - The company had $2.20 billion available for borrowing under its revolving credit facility as of September 27, 2024[216]. Tax and Liabilities - The liability for unrecognized tax benefits as of September 27, 2024, was $692 million, with $597 million potentially resulting in cash payments[208]. - The company expects to realize tax savings of approximately $162 million from settlements related to tax obligations for the years 2008 through 2015[210]. - The company made payments of $130 million for interest related to tax settlements during Q3 2024, resulting in a remaining liability of $10 million for the years 2008 through 2015[209]. - The estimated mandatory deemed repatriation tax obligation for 2026 is $331 million, payable by September 27, 2024[226]. Foreign Exchange and Risk Management - As of September 27, 2024, 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 $294 million[235]. - The outstanding balance on variable rate debt as of September 27, 2024, is $2.6 billion, with a one percent increase in the variable interest rate expected to increase annual interest expense by $26 million[236]. - The company uses foreign exchange contracts to hedge against currency fluctuations affecting operating expenses and product costs[227]. - The company performed sensitivity analyses indicating that foreign currency derivative contracts are used to offset underlying exposures[235]. - There have been no material changes to market risk during the three months ended September 27, 2024[234]. Accounting Policies - The company has adopted a policy to capitalize and amortize R&D expenses since the beginning of 2023, which may lead to higher cash tax payments in future profitable periods[226]. - There have been no material changes in critical accounting policies and estimates from those disclosed in the Annual Report for the year ended June 28, 2024[232]. Insurance and Indemnification - The company maintains director and officer insurance to cover certain liabilities arising from indemnification obligations[228]. - The company has not incurred material costs from indemnification agreements historically, despite the inability to determine maximum potential amounts under these agreements[229].

Financial Data and Key Metrics Changes - Western Digital reported total revenue of $4.1 billion, representing a 9% sequential increase and a 49% year-over-year increase [13] - Non-GAAP gross margin was 38.5%, up 220 basis points sequentially, and non-GAAP earnings per share were $1.78 [13][15] - Operating income increased by 33% sequentially to $884 million, with an operating margin of 21.6%, the highest in five years [16] Business Line Data and Key Metrics Changes - Flash revenue reached $1.9 billion, up 7% sequentially and 21% year-over-year, driven by strong demand for enterprise SSD products [14] - HDD revenue was $2.2 billion, up 10% sequentially and 85% year-over-year, with nearline bit shipments at a record level of 141 exabytes [14][15] - The gross margin for Flash was 38.9%, up 240 basis points sequentially, while HDD gross margin was 38.1%, up 200 basis points sequentially [15][16] Market Data and Key Metrics Changes - Cloud represented 54% of total revenue at $2.2 billion, up 17% sequentially and more than doubling year-over-year [13] - Client segment represented 29% of total revenue at $1.2 billion, flat sequentially and up 5% year-over-year [13] - Consumer segment accounted for 17% of revenue at $0.7 billion, flat sequentially and down 7% year-over-year [13] Company Strategy and Development Direction - The company is on track with the separation of its Flash and HDD businesses, having completed the soft-spin phase [6][7] - The focus remains on enhancing product offerings, particularly in enterprise SSDs, to capitalize on the AI Data Cycle and growing storage needs [5][21] - The company anticipates continued growth in both Flash and HDD segments, with a strong emphasis on operational excellence and maintaining a balanced supply-demand dynamic [12][20] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the product roadmap and the significant opportunities presented by the AI Data Cycle [21] - The company expects a recovery in consumer and client end markets as it moves through calendar year 2025 [9] - There is a positive outlook for enterprise SSDs, with expectations for the mix to comprise over 15% of overall portfolio bit shipments in fiscal year 2025 [9][24] Other Important Information - The company completed the sale of 80% of its equity interest in SanDisk Semiconductor Shanghai to JCET, forming a joint venture [18] - Cash capital expenditures for the fiscal first quarter were $48 million, with total liquidity of $3.9 billion [17] Q&A Session Summary Question: Can you speak to the qualifications seen with enterprise SSDs, particularly with NVIDIA's GB200? - Management noted strong confidence in the enterprise SSD portfolio, with qualifications doubling in the last quarter and strong demand expected [23][24] Question: How is pricing negotiation evolving in the HDD industry? - Management indicated improved visibility into customer demand and a better supply-demand balance, which supports pricing negotiations [26] Question: What is the plan for separating the companies? - The company is executing a soft-spin phase and will report one set of numbers for the December quarter, with plans to file the Form-10 during the March quarter [29][30] Question: How much room is there for expanding HDD capacity? - Management stated that they have sized their infrastructure to meet market demand and are focused on driving profitability without expanding the manufacturing capacity footprint [34][35] Question: What is the outlook for Flash ASPs given the mixed market conditions? - Management expects blended pricing to be flat with some cost headwinds, while enterprise SSDs remain strong [46][47] Question: How does the company ensure that HDD shipments are not piling up as inventory? - Management expressed confidence that there is no excessive inventory being built and emphasized close relationships with customers to gauge future demand [50] Question: What are the CapEx expectations for HDD and Flash for the rest of the year? - Management indicated that gross CapEx is expected to remain in line with the average over the last few quarters [51]

Financial Performance - First quarter revenue was $4.10 billion, up 9% sequentially and up 49% year-over-year[1][4] - GAAP earnings per share (EPS) was $1.35, up 1588% from $0.08 in the previous quarter[3][4] - Non-GAAP EPS was $1.78, up 24% from $1.44 in the previous quarter[3] - Operating income was $742 million, up 244% from $216 million in the previous quarter[3] - Total net revenue for the three months ended September 27, 2024, was $4,095 million, a significant increase from $2,750 million in the same period last year, representing a growth of 49%[16] - Operating income for the quarter was $742 million, a turnaround from an operating loss of $596 million in the same quarter last year[16] - Net income attributable to common shareholders was $481 million, compared to a net loss of $700 million in the prior year[16] - GAAP net income for September 2024 was $493 million, compared to a loss of $685 million in September 2023[20] - Non-GAAP net income for September 2024 was $648 million, up from a loss of $554 million in September 2023[20] - Non-GAAP diluted net income attributable to common shareholders was $634 million, compared to a loss of $569 million in the same period last year[20] Revenue Breakdown - Cloud revenue increased 17% sequentially and 153% year-over-year, representing 54% of total revenue[6][7] - The HDD segment generated $2,211 million in revenue, up from $1,194 million, while the Flash segment reported $1,884 million, down from $1,556 million[18] Cash Flow and Liquidity - The company had an operating cash inflow of $34 million and ended the quarter with $1.71 billion in cash and cash equivalents[4] - Cash and cash equivalents decreased to $1,705 million from $1,879 million at the end of the previous quarter[17] - Total current assets increased to $8,942 million from $8,060 million, driven by higher accounts receivable and inventories[14] - The company reported a significant improvement in cash flow from operations, generating $34 million compared to a cash outflow of $626 million in the same quarter last year[17] - Free cash flow for September 2024 was negative $14 million, a decrease from positive $282 million in the previous quarter[20] - Cash flow provided by operating activities was $34 million, down from $366 million in the previous quarter[20] Expenses and Costs - Operating expenses decreased by 29% sequentially to $809 million[3] - Research and development expenses rose to $519 million from $431 million, indicating a focus on innovation and new product development[16] - The company incurred $84 million in stock-based compensation expense for the quarter[20] - Business separation costs amounted to $43 million, reflecting the separation of HDD and Flash business units[20] - The company recognized $14 million in expenses related to a litigation matter during the quarter[20] Future Outlook - The company expects fiscal second quarter 2025 revenue to be in the range of $4.20 billion to $4.40 billion[1][8] Legal Matters - A jury returned a verdict in a patent infringement case against the company for $316 million, which is currently under evaluation[10] Profitability Metrics - Gross margin for the first quarter was 37.9%, up 2.0 percentage points from the previous quarter[3] - Gross profit for the same period was $1,551 million, compared to only $99 million in the prior year, resulting in a gross margin of 37.9%, up from 3.6%[16][18] - GAAP diluted income per share for September 2024 was $1.35, a significant increase from a loss of $2.17 in September 2023[20] - Non-GAAP diluted income per share for September 2024 was $1.78, compared to a loss of $1.76 in September 2023[20]

Financial Data and Key Metrics Changes - The company is experiencing a strong recovery in the NAND business after a downturn, with significant improvements in profitability and demand dynamics [16][19][20] - The HDD business has achieved record profitability, with a balanced supply-demand dynamic leading to better visibility in future demand [19][20] Business Line Data and Key Metrics Changes - The AC business is noted as the largest and fastest-growing segment, with a strong focus on profitability and execution [6][7] - The flash business is undergoing a strategic separation, with new leadership and a focus on consumer and enterprise segments [9][10][32] Market Data and Key Metrics Changes - The data center market is transitioning to stronger demand, which is now leading the recovery, while consumer spending is facing headwinds [16][18] - The company has seen a recovery in the PC market, but it is currently plateauing, indicating a need for inventory adjustments [16][18] Company Strategy and Development Direction - The company is in the process of spinning out two separate businesses to unlock value and allow investors to choose their investment focus [6][9] - There is a strong emphasis on maintaining a competitive capital structure for both new entities, considering market specifics and growth profiles [57][58] Management's Comments on Operating Environment and Future Outlook - Management expresses confidence in the recovery of the NAND and HDD markets, with expectations for sustained profitability and improved margins [20][19] - The company is optimistic about the impact of AI on both the flash and HDD businesses, anticipating increased demand as AI technologies are integrated into devices [27][45] Other Important Information - The joint venture with Kioxia is expected to remain strong, with a new agreement extending through 2034, ensuring continued collaboration on technology roadmaps [12][14] - The company is focusing on innovation within its NAND technology, with advancements in node transitions and product offerings [36][41] Q&A Session Summary Question: Recap on the strategic graphs for spinning out the two businesses - Management discussed the strategic separation of the businesses to enhance focus and execution, with plans to operate as independent public companies by early October [6][9] Question: Impact of Kioxia's IPO on the joint venture - Management reassured that the joint venture remains strong and is expected to continue its successful collaboration despite Kioxia's IPO plans [12] Question: Changes in end demand across various segments - Management noted a strong recovery in the data center market, while consumer demand is currently facing challenges [16][18] Question: Concerns about flash pricing and market dynamics - Management acknowledged the complexities in flash pricing across different markets, emphasizing that while some segments are recovering, others are experiencing a plateau [21][23] Question: Capital structure planning for the two spin companies - Management outlined the framework for establishing competitive capital structures for both new entities, focusing on market specifics and growth profiles [57][58] Question: Timeline for HAMR technology development - Management indicated that HAMR technology is part of the long-term roadmap, with a focus on achieving significant capacity milestones before its introduction [60][62]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended June 28, 2024 Or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number: 1-8703 WESTERN DIGITAL CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 33-0956711 (State or other jurisdiction o ...

Western Digital Corporation (NASDAQ:WDC) Q4 2024 Earnings Conference Call July 31, 2024 4:30 PM ET Company Participants Peter Andrew - Vice President of Financial Planning and Analyst and Investor Relations David Goeckeler - Chief Executive Officer Wissam Jabre - Executive Vice President & Chief Financial Officer Conference Call Participants C.J. Muse - Cantor Fitzgerald Joe Moore - Morgan Stanley Grant Joslin - UBS Aaron Rakers - Wells Fargo Karl Ackerman - BNP Paribas Amit Daryanani - Evercore Vijay Rakes ...

Western Digital Reports Fiscal Fourth Quarter and Fiscal Year 2024 Financial Results News Summary Exhibit 99.1 SAN JOSE, Calif., — July 31, 2024 — Western Digital Corp. (Nasdaq: WDC) today reported fiscal fourth quarter and fiscal year 2024 financial results. "Our fourth quarter and fiscal year 2024 results are reflective of the diverse and innovative portfolio we have developed in alignment with our strategic roadmap. Together, with the structural changes we have made to strengthen our operations, we are b ...

Summary of Western Digital Corporation Conference Call Company Overview - **Company**: Western Digital Corporation (NASDAQ: WDC) - **Event**: Bank of America 2024 Global Technology Conference - **Date**: June 4, 2024 Key Industry Insights - **AI Impact**: AI adoption is expected to increase storage needs across various sectors including PC, mobile, and cloud, benefiting both HDD and Flash segments [4][5][6] - **Pricing Environment**: The pricing environment for both Flash and HDD is favorable, driven by supply-demand dynamics, with expectations of continued favorable conditions in the coming quarters [7][8] - **Capacity Management**: The company has optimized its manufacturing capacity during the downturn, focusing on profitability rather than capital investments [10][11][49] Financial Performance and Projections - **Gross Margins**: Target gross margins are set at 31% to 34% for HDD and 35% to 37% for Flash, with current performance indicating a recovery towards these targets [20][22] - **Cost Reduction**: The company aims for mid-teen percentage cost reductions in Flash technology transitions, while HDD cost reductions are expected to be in low double-digit percentage points [15][16] - **Cash Generation**: Western Digital has returned to generating cash and is focused on strengthening its balance sheet ahead of the planned spin-off [24] Strategic Developments - **Spin-off Plans**: The company is making significant progress towards splitting into two independent entities focused on HDD and Flash, targeting completion by the end of the year [18][19] - **Enterprise SSD Growth**: Demand for enterprise SSDs is recovering, with new products aimed at AI workloads expected to launch in the second half of the year [25][26][27] - **Technology Transition**: The transition from BiCS5 to BiCS6 and BiCS8 is underway, with BiCS8 expected to be the next major node for product launches [29][30] Market Dynamics - **Exabyte Growth**: The HDD industry is expected to see long-term exabyte growth in the range of 20% to 25%, with sequential improvements anticipated for the remainder of the calendar year [34] - **SMR Adoption**: SMR-based shipments accounted for over 50% of high-capacity drives last quarter, with positive traction from key cloud customers [43][44] Operational Efficiency - **Capacity Reduction**: The company reduced its client manufacturing footprint by 40% and fixed costs by approximately 15% compared to fiscal year 2022, enhancing operating leverage [49][50] - **Cost Management**: Operating expenses have been reduced by $100 million to $150 million per quarter, allowing for continued investment in product development [50] Conclusion - **Cyclical Recovery**: Western Digital is positioned for a cyclical recovery with a strong product portfolio and favorable market conditions, while also preparing for the upcoming spin-off to unlock shareholder value [52]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements (unaudited)](index=6&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Western Digital's unaudited condensed consolidated financial statements and detailed notes for the periods ended March 29, 2024, and March 31, 2023 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity as of March 29, 2024, and June 30, 2023 **Condensed Consolidated Balance Sheets (in millions)** | Metric | March 29, 2024 | June 30, 2023 | | :-------------------------------- | :------------- | :------------ | | Cash and cash equivalents | $1,894 | $2,023 | | Accounts receivable, net | $1,800 | $1,598 | | Inventories | $3,215 | $3,698 | | Total current assets | $7,532 | $7,886 | | Property, plant and equipment, net | $3,253 | $3,620 | | Total assets | $23,801 | $24,546 | | Accounts payable | $1,400 | $1,293 | | Total current liabilities | $4,053 | $5,434 | | Long-term debt | $7,318 | $5,857 | | Total liabilities | $12,804 | $12,706 | | Total shareholders' equity | $10,121 | $10,964 | - Total assets **decreased by $745 million** from $24,546 million at June 30, 2023, to $23,801 million at March 29, 2024[20](index=20&type=chunk) - Total liabilities **increased by $98 million** from $12,706 million at June 30, 2023, to $12,804 million at March 29, 2024[20](index=20&type=chunk) - Total shareholders' equity **decreased by $843 million** from $10,964 million at June 30, 2023, to $10,121 million at March 29, 2024[20](index=20&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the company's revenues, expenses, and net income or loss for the three and nine months ended March 29, 2024, and March 31, 2023 **Three Months Ended March 29, 2024 vs March 31, 2023 (in millions, except per share amounts)** | Metric | March 29, 2024 | March 31, 2023 | Change | % Change | | :----------------------------------- | :------------- | :------------- | :----- | :------- | | Revenue, net | $3,457 | $2,803 | $654 | 23.3% | | Gross profit | $1,001 | $286 | $715 | 250.0% | | Operating income (loss) | $273 | $(472) | $745 | (157.8)% | | Net income (loss) attributable to common shareholders | $113 | $(580) | $693 | (119.5)% | | Diluted EPS | $0.34 | $(1.82) | $2.16 | (118.7)% | **Nine Months Ended March 29, 2024 vs March 31, 2023 (in millions, except per share amounts)** | Metric | March 29, 2024 | March 31, 2023 | Change | % Change | | :----------------------------------- | :------------- | :------------- | :----- | :------- | | Revenue, net | $9,239 | $9,646 | $(407) | (4.2)% | | Gross profit | $1,592 | $1,795 | $(203) | (11.3)% | | Operating loss | $(533) | $(635) | $102 | (16.1)% | | Net loss attributable to common shareholders | $(881) | $(984) | $103 | (10.5)% | | Diluted EPS | $(2.72) | $(3.09) | $0.37 | (11.9)% | - For the three months ended March 29, 2024, net income attributable to common shareholders was **$113 million**, a significant improvement from a net loss of **$(580) million** in the prior year period[22](index=22&type=chunk) - For the nine months ended March 29, 2024, the net loss attributable to common shareholders improved to **$(881) million** from **$(984) million** in the prior year period[22](index=22&type=chunk) [Condensed Consolidated Statements of Comprehensive Loss](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Loss) This section details the company's net income or loss and other comprehensive income or loss components for the three and nine months ended March 29, 2024, and March 31, 2023 **Three Months Ended March 29, 2024 vs March 31, 2023 (in millions)** | Metric | March 29, 2024 | March 31, 2023 | Change | | :----------------------------------- | :------------- | :------------- | :----- | | Net income (loss) | $135 | $(571) | $706 | | Foreign currency translation adjustment | $(75) | $(8) | $(67) | | Net unrealized gain (loss) on derivative contracts | $(86) | $21 | $(107) | | Total comprehensive loss | $(8) | $(565) | $557 | **Nine Months Ended March 29, 2024 vs March 31, 2023 (in millions)** | Metric | March 29, 2024 | March 31, 2023 | Change | | :----------------------------------- | :------------- | :------------- | :----- | | Net loss | $(837) | $(975) | $138 | | Foreign currency translation adjustment | $(55) | $11 | $(66) | | Net unrealized gain on derivative contracts | $(45) | $233 | $(278) | | Total comprehensive loss | $(925) | $(771) | $(154) | - Total comprehensive loss significantly improved to **$(8) million** for the three months ended March 29, 2024, from **$(565) million** in the prior year period[25](index=25&type=chunk) - For the nine months ended March 29, 2024, total comprehensive loss increased to **$(925) million** from **$(771) million** in the prior year period[25](index=25&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section outlines the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended March 29, 2024, and March 31, 2023 **Nine Months Ended March 29, 2024 vs March 31, 2023 (in millions)** | Metric | March 29, 2024 | March 31, 2023 | Change | | :----------------------------------- | :------------- | :------------- | :----- | | Net loss | $(837) | $(975) | $138 | | Depreciation and amortization | $430 | $643 | $(213) | | Net cash used in operating activities | $(660) | $(340) | $(320) | | Net cash provided by (used in) investing activities | $31 | $(620) | $651 | | Net cash provided by financing activities | $506 | $856 | $(350) | | Net decrease in cash and cash equivalents | $(129) | $(107) | $(22) | | Cash paid for income taxes | $874 | $181 | $693 | | Cash paid for interest | $321 | $252 | $69 | - Net cash used in operating activities increased to **$(660) million** for the nine months ended March 29, 2024, from **$(340) million** in the prior year period[28](index=28&type=chunk) - Net cash provided by (used in) investing activities significantly improved to **$31 million** for the nine months ended March 29, 2024, from **$(620) million** used in the prior year period[28](index=28&type=chunk) [Condensed Consolidated Statements of Convertible Preferred Stock and Shareholders' Equity](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Convertible%20Preferred%20Stock%20and%20Shareholders'%20Equity) This section details changes in the company's convertible preferred stock and shareholders' equity for the periods ended March 29, 2024, and June 30, 2023 **Changes in Shareholders' Equity (in millions)** | Metric | June 30, 2023 | March 29, 2024 | Change | | :----------------------------------- | :------------ | :------------- | :----- | | Convertible Preferred Stock | $876 | $876 | $0 | | Common Stock | $3 | $3 | $0 | | Additional Paid-In Capital | $3,936 | $4,018 | $82 | | Accumulated Other Comprehensive Loss | $(548) | $(636) | $(88) | | Retained Earnings | $7,573 | $6,736 | $(837) | | Total Shareholders' Equity | $10,964 | $10,121 | $(843) | - Total shareholders' equity **decreased from $10,964 million** at June 30, 2023, to **$10,121 million** at March 29, 2024[29](index=29&type=chunk) - Retained earnings **decreased by $837 million**, primarily due to net losses, from $7,573 million at June 30, 2023, to $6,736 million at March 29, 2024[29](index=29&type=chunk) - Accumulated other comprehensive loss increased to **$(636) million** at March 29, 2024, from **$(548) million** at June 30, 2023, mainly due to foreign currency translation adjustments and unrealized losses on derivative contracts[29](index=29&type=chunk)[64](index=64&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and supplementary information to the condensed consolidated financial statements, covering accounting policies, segment reporting, debt, equity, and income taxes [Note 1. Organization and Basis of Presentation](index=12&type=section&id=Note%201.%20Organization%20and%20Basis%20of%20Presentation) This note describes Western Digital's business, reporting segments, planned business separation, and revisions to previously issued financial statements - Western Digital is a leading developer, manufacturer, and provider of data storage devices and solutions based on NAND flash and hard disk drive technologies, serving Cloud, Client, and Consumer end markets[34](index=34&type=chunk)[35](index=35&type=chunk) - The company manages and reports under two segments: Flash-based products ("Flash") and hard disk drives ("HDD")[38](index=38&type=chunk) - On October 30, 2023, the Board authorized a plan to separate Flash and HDD business units into two independent public companies, targeting completion in the second half of calendar year 2024, incurring related separation and transition costs[40](index=40&type=chunk) - The company revised previously reported financial information due to errors in reporting equity method investments in Flash Ventures, specifically unadjusted differences between Japanese GAAP and U.S. GAAP for certain lease-related transactions[42](index=42&type=chunk)[43](index=43&type=chunk) [Note 2. Recent Accounting Pronouncements](index=14&type=section&id=Note%202.%20Recent%20Accounting%20Pronouncements) This note outlines recently adopted and upcoming accounting standards, including disclosures for supplier finance programs, segment reporting, and income taxes - Adopted ASU 2022-04, "Liabilities-Supplier Finance Programs," in Q1 FY24, requiring annual and interim disclosures for supplier finance program obligations, with rollforward information to be provided starting FY25[46](index=46&type=chunk) - ASU 2023-07, "Segment Reporting," which expands segment reporting requirements for significant segment expenses, will be effective for FY25[47](index=47&type=chunk) - ASU 2023-09, "Income Taxes," enhancing income tax disclosure requirements, will be effective for FY26, with early adoption permitted[48](index=48&type=chunk) [Note 3. Business Segments, Geographic Information, and Concentrations of Risk](index=15&type=section&id=Note%203.%20Business%20Segments,%20Geographic%20Information,%20and%20Concentrations%20of%20Risk) This note details the financial performance of Flash and HDD segments, revenue by end market and geography, and concentrations of risk **Segment Operating Performance (Three Months Ended, in millions)** | Metric | March 29, 2024 | March 31, 2023 | Change | % Change | | :----------------------------------- | :------------- | :------------- | :----- | :------- | | **Revenue, net:** | | | | | | Flash | $1,705 | $1,307 | $398 | 30.5% | | HDD | $1,752 | $1,496 | $256 | 17.1% | | Total net revenue | $3,457 | $2,803 | $654 | 23.3% | | **Gross profit:** | | | | | | Flash | $467 | $(65) | $532 | (818.5)% | | HDD | $545 | $363 | $182 | 50.1% | | Consolidated gross profit | $1,001 | $286 | $715 | 250.0% | | **Gross margin:** | | | | | | Flash | 27.4% | (5.0)% | 32.4 pp | | | HDD | 31.1% | 24.3% | 6.8 pp | | | Consolidated gross margin | 29.0% | 10.2% | 18.8 pp | | **Segment Operating Performance (Nine Months Ended, in millions)** | Metric | March 29, 2024 | March 31, 2023 | Change | % Change | | :----------------------------------- | :------------- | :------------- | :----- | :------- | | **Revenue, net:** | | | | | | Flash | $4,926 | $4,686 | $240 | 5.1% | | HDD | $4,313 | $4,960 | $(647) | (13.0)% | | Total net revenue | $9,239 | $9,646 | $(407) | (4.2)% | | **Gross profit:** | | | | | | Flash | $437 | $597 | $(160) | (26.8)% | | HDD | $1,157 | $1,237 | $(80) | (6.5)% | | Consolidated gross profit | $1,592 | $1,795 | $(203) | (11.3)% | | **Gross margin:** | | | | | | Flash | 8.9% | 12.7% | (3.8) pp | | | HDD | 26.8% | 24.9% | 1.9 pp | | | Consolidated gross margin | 17.2% | 18.6% | (1.4) pp | | **Revenue by End Market (in millions)** | End Market | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :--------- | :------ | :------ | :------ | :------ | | Cloud | $1,553 | $1,205 | $3,496 | $4,258 | | Client | $1,174 | $975 | $3,443 | $3,293 | | Consumer | $730 | $623 | $2,300 | $2,095 | **Revenue by Geography (in millions)** | Geography | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :-------- | :------ | :------ | :------ | :------ | | Asia | $1,740 | $1,353 | $4,990 | $4,533 | | Americas | $1,154 | $935 | $2,620 | $3,448 | | Europe, Middle East and Africa | $563 | $515 | $1,629 | $1,665 | - The company's top 10 customers accounted for **42% of its net revenue** for the three months ended March 29, 2024, down from 49% in the comparable prior year period[54](index=54&type=chunk) - Total goodwill was **$10,034 million** as of March 29, 2024, with no indications of impairment[55](index=55&type=chunk) [Note 4. Supplemental Financial Statement Data](index=17&type=section&id=Note%204.%20Supplemental%20Financial%20Statement%20Data) This note provides additional details on accounts receivable, inventories, property, plant and equipment, warranty accruals, and accumulated other comprehensive loss - The company sold trade accounts receivable aggregating **$623 million** during the nine months ended March 29, 2024, with **$102 million** remaining outstanding as of that date[58](index=58&type=chunk) **Inventories (in millions)** | Category | March 29, 2024 | June 30, 2023 | | :------------------------ | :------------- | :------------ | | Raw materials and component parts | $1,666 | $2,096 | | Work-in-process | $1,045 | $979 | | Finished goods | $504 | $623 | | Total inventories | $3,215 | $3,698 | - Property, plant and equipment, net, decreased to **$3,253 million** as of March 29, 2024, from **$3,620 million** at June 30, 2023[60](index=60&type=chunk) - The total warranty accrual decreased to **$203 million** as of March 29, 2024, from **$244 million** at June 30, 2023[62](index=62&type=chunk) - Accumulated other comprehensive loss (AOCL) increased to **$(636) million** as of March 29, 2024, from **$(548) million** at June 30, 2023, primarily due to foreign currency translation adjustments and unrealized losses on derivative contracts[64](index=64&type=chunk) [Note 5. Fair Value Measurements and Investments](index=20&type=section&id=Note%205.%20Fair%20Value%20Measurements%20and%20Investments) This note details financial instruments carried at fair value and those not carried at fair value, including debt instruments, as of March 29, 2024 **Financial Instruments Carried at Fair Value (March 29, 2024, in millions)** | Category | Level 1 | Level 2 | Level 3 | Total | | :-------------------------------- | :------ | :------ | :------ | :---- | | **Assets:** | | | | | | Cash equivalents - Money market funds | $333 | — | — | $333 | | Short-term investments - Certificates of deposit | $27 | — | — | $27 | | Foreign exchange contracts | — | $9 | — | $9 | | Total assets at fair value | $360 | $9 | — | $369 | | **Liabilities:** | | | | | | Foreign exchange contracts | — | $142 | — | $142 | | Total liabilities at fair value | — | $142 | — | $142 | **Financial Instruments Not Carried at Fair Value (March 29, 2024, in millions)** | Debt Instrument | Carrying Value | Fair Value | | :----------------------------------- | :------------- | :--------- | | 1.50% convertible notes due 2024 | $— | $— | | Variable interest rate Delayed Draw Term Loan due 2024 | $300 | $300 | | 4.75% senior unsecured notes due 2026 | $2,295 | $2,253 | | Variable interest rate Term Loan A-2 maturing 2027 | $2,615 | $2,556 | | 3.00% convertible notes due 2028 | $1,566 | $2,351 | | 2.85% senior notes due 2029 | $496 | $436 | | 3.10% senior notes due 2032 | $496 | $403 | | Total | $7,768 | $8,299 | [Note 6. Derivative Instruments and Hedging Activities](index=22&type=section&id=Note%206.%20Derivative%20Instruments%20and%20Hedging%20Activities) This note describes the company's use of foreign exchange forward contracts for hedging and their impact on financial statements - The company uses foreign exchange forward contracts designated as cash flow hedges or non-designated hedges, with most contract maturity dates not exceeding 12 months[72](index=72&type=chunk) - Net realized and unrealized transaction and foreign exchange contract currency gains and losses were not material to the Condensed Consolidated Financial Statements for the periods presented[73](index=73&type=chunk) - Unrealized gains or losses on designated cash flow hedges are recognized in Accumulated Other Comprehensive Loss (AOCL)[74](index=74&type=chunk) [Note 7. Debt](index=23&type=section&id=Note%207.%20Debt) This note details the company's debt instruments, including convertible notes and term loans, and compliance with financial covenants as of March 29, 2024 **Debt (in millions)** | Debt Instrument | March 29, 2024 | June 30, 2023 | | :----------------------------------- | :------------- | :------------ | | 1.50% convertible notes due 2024 | $— | $1,100 | | Variable interest rate Delayed Draw Term Loan due 2024 | $300 | $— | | 4.75% senior unsecured notes due 2026 | $2,300 | $2,300 | | Variable interest rate Term Loan A-2 maturing 2027 | $2,625 | $2,700 | | 3.00% convertible notes due 2028 | $1,600 | $— | | 2.85% senior notes due 2029 | $500 | $500 | | 3.10% senior notes due 2032 | $500 | $500 | | Total debt | $7,825 | $7,100 | | Long-term debt | $7,318 | $5,857 | - The company issued **$1.60 billion** aggregate principal amount of 3.00% convertible senior notes due 2028 on November 3, 2023, with an initial conversion price of approximately **$52.20 per share**[83](index=83&type=chunk)[84](index=84&type=chunk) - The company repurchased approximately **$508 million** of its 2024 Convertible Notes and settled the remaining **$592 million** on February 1, 2024[86](index=86&type=chunk)[88](index=88&type=chunk) - In connection with the 2028 Convertible Notes, the company entered into capped call transactions for **$155 million** to hedge potential dilution, recorded as a decrease to Additional paid-in capital[87](index=87&type=chunk) - The company was in compliance with all financial covenants (leverage ratio and minimum liquidity) for its loan agreements as of March 29, 2024[81](index=81&type=chunk) [Note 8. Pension and Other Post-Retirement Benefit Plans](index=25&type=section&id=Note%208.%20Pension%20and%20Other%20Post-Retirement%20Benefit%20Plans) This note provides information on the unfunded status of the company's pension plans and the expected long-term rate of return on assets **Pension Plan Unfunded Status (in millions)** | Metric | March 29, 2024 | June 30, 2023 | | :----------------------------------- | :------------- | :------------ | | Benefit obligation at end of period | $258 | $273 | | Fair value of plan assets at end of period | $176 | $185 | | Unfunded status | $82 | $88 | - The unfunded status of the company's principal pension plans decreased to **$82 million** as of March 29, 2024, from **$88 million** at June 30, 2023[92](index=92&type=chunk) - The expected long-term rate of return on the Pension Plans assets is **2.5%**[91](index=91&type=chunk) [Note 9. Related Parties and Related Commitments and Contingencies](index=26&type=section&id=Note%209.%20Related%20Parties%20and%20Related%20Commitments%20and%20Contingencies) This note details the company's notes receivable and investments in Flash Ventures, maximum loss exposure, and lease guarantee obligations **Notes Receivable and Investments in Flash Ventures (in millions)** | Category | March 29, 2024 | June 30, 2023 | | :----------------------------------- | :------------- | :------------ | | Notes receivable, Flash Partners | $— | $37 | | Notes receivable, Flash Alliance | $— | $48 | | Notes receivable, Flash Forward | $556 | $709 | | Investment in Flash Partners | $157 | $161 | | Investment in Flash Alliance | $234 | $276 | | Investment in Flash Forward | $152 | $179 | | Total notes receivable and investments in Flash Ventures | $1,099 | $1,410 | - The company's maximum reasonably estimable loss exposure from Flash Ventures was **$3,576 million** as of March 29, 2024, including notes receivable, equity investments, operating lease guarantees, and inventory/prepayments[100](index=100&type=chunk) - During the nine months ended March 29, 2024, the company incurred **$249 million** in costs associated with the temporary reduction in Flash Ventures' manufacturing capacity utilization, recorded as a charge to Cost of revenue[103](index=103&type=chunk) - The company received a **$36 million** insurance recovery during the three months ended December 29, 2023, related to the February 2022 contamination incident at Flash Ventures' facilities[104](index=104&type=chunk) **Flash Ventures Lease Guarantee Obligations (U.S. dollar, in millions)** | Annual Installments | Payment of Principal Amortization | Purchase Option Exercise Price at Final Lease Terms | Guarantee Amount | | :----------------------------------- | :-------------------------------- | :------------------------------------------ | :--------------- | | Remaining three months of 2024 | $110 | $27 | $137 | | 2025 | $290 | $79 | $369 | | 2026 | $359 | $119 | $478 | | 2027 | $154 | $101 | $255 | | 2028 | $50 | $97 | $147 | | 2029 | $6 | $39 | $45 | | Total guarantee obligations | $969 | $462 | $1,431 | - Revenue on products distributed by the Unis Venture (49% owned by the company) accounted for approximately **4% of consolidated revenue** for both the three and nine months ended March 29, 2024[112](index=112&type=chunk) [Note 10. Leases and Other Commitments](index=29&type=section&id=Note%2010.%20Leases%20and%20Other%20Commitments) This note provides details on operating lease liabilities, right-of-use assets, the Milpitas sale-leaseback, and long-term commitments **Operating Lease Information (March 29, 2024, in millions)** | Metric | Amount | | :----------------------------------- | :----- | | Present value of lease liabilities | $429 | | Long-term operating lease liabilities | $382 | | Operating lease right-of-use assets | $408 | | Weighted average remaining lease term | 10.0 years | | Weighted average discount rate | 6.0% | - The company completed a sale and leaseback of its Milpitas, California facility in September 2023, receiving **$191 million** in net proceeds and recording an **$85 million gain** on the sale[117](index=117&type=chunk) **Long-Term Commitments (in millions)** | Year | Amount | | :----------------------------------- | :----- | | Remaining three months of 2024 | $45 | | 2025 | $172 | | 2026 | $96 | | 2027 | $59 | | 2028 | $20 | | Thereafter | $130 | | Total | $522 | [Note 11. Shareholders' Equity and Convertible Preferred Stock](index=31&type=section&id=Note%2011.%20Shareholders'%20Equity%20and%20Convertible%20Preferred%20Stock) This note details stock-based compensation expense, unamortized compensation costs, outstanding RSUs and PSUs, and cumulative preferred stock dividends **Stock-Based Compensation Expense (in millions)** | Category | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :----------------------------------- | :------ | :------ | :------ | :------ | | RSUs and PSUs | $65 | $63 | $198 | $217 | | ESPP | $12 | $11 | $28 | $29 | | Total | $77 | $74 | $226 | $246 | **Unamortized Compensation Cost (March 29, 2024, in millions)** | Category | Unamortized Compensation Costs | Weighted Average Service Period (years) | | :----------------------------------- | :----------------------------- | :-------------------------------------- | | RSUs and PSUs | $454 | 2.4 | | ESPP | $33 | 0.7 | | Total unamortized compensation cost | $487 | | - As of March 29, 2024, there were **no remaining outstanding stock options**[123](index=123&type=chunk)[124](index=124&type=chunk) - The company had **13.2 million RSUs and PSUs** outstanding as of March 29, 2024, with a weighted average grant date fair value of **$43.36**[125](index=125&type=chunk) - Unpaid and cumulative dividends payable with respect to the Series A Convertible Perpetual Preferred Stock were **$68 million** as of March 29, 2024[126](index=126&type=chunk) [Note 12. Income Tax Expense](index=33&type=section&id=Note%2012.%20Income%20Tax%20Expense) This note presents income tax expense, effective tax rates, IRS settlement details, and the impact of R&D expense capitalization **Income Tax Expense and Effective Tax Rate (in millions)** | Metric | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Income (loss) before taxes | $178 | $(528) | $(763) | $(816) | | Income tax expense | $43 | $43 | $74 | $159 | | Effective tax rate | 24% | (8)% | (10)% | (19)% | - The effective tax rate for Q3 FY24 was **24%** (vs. (8)% in Q3 FY23) and for 9M FY24 was **(10)%** (vs. (19)% in 9M FY23)[131](index=131&type=chunk) - The company reached final agreements with the IRS for tax years 2008-2015, making payments of **$363 million** for tax and **$160 million** for interest during 9M FY24 for years 2008-2012, with a remaining liability of **$182 million** as of March 29, 2024[137](index=137&type=chunk) - The company expects to realize approximately **$164 million** in reductions to mandatory deemed repatriation tax obligations and tax savings from interest deductions in future years due to these settlements[138](index=138&type=chunk) - The 2017 Act's requirement to capitalize and amortize R&D expenses is expected to materially increase cash tax payments in future profitable periods if not repealed or modified[131](index=131&type=chunk) [Note 13. Net Income (Loss) Per Common Share](index=35&type=section&id=Note%2013.%20Net%20Income%20(Loss)%20Per%20Common%20Share) This note details basic and diluted net income or loss per common share and weighted average shares outstanding for the periods presented **Net Income (Loss) Per Common Share (in millions, except per share data)** | Metric | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Net income (loss) attributable to common shareholders | $113 | $(580) | $(881) | $(984) | | Basic EPS | $0.35 | $(1.82) | $(2.72) | $(3.09) | | Diluted EPS | $0.34 | $(1.82) | $(2.72) | $(3.09) | | Weighted average shares outstanding (Diluted) | 335 | 319 | 324 | 318 | - For the three months ended March 29, 2024, diluted EPS was **$0.34**, a significant improvement from **$(1.82)** in the prior year period[142](index=142&type=chunk) - For the three months ended March 29, 2024, **9 million** dilutive potential common shares were included in the diluted EPS calculation; for other periods with net losses, anti-dilutive shares were excluded[142](index=142&type=chunk)[143](index=143&type=chunk) [Note 14. Employee Termination, Asset Impairment, and Other](index=36&type=section&id=Note%2014.%20Employee%20Termination,%20Asset%20Impairment,%20and%20Other) This note outlines charges related to employee termination benefits, asset impairments, contract termination, and the gain on sale-leaseback of a facility **Employee Termination, Asset Impairment, and Other Charges (in millions)** | Category | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Employee termination benefits | $1 | $40 | $44 | $125 | | Contract termination and other | $2 | $— | $31 | $— | | Asset impairments | $5 | $— | $99 | $15 | | Gain on sale-leaseback of facility | $— | $— | $(85) | $— | | Total charges | $8 | $40 | $89 | $140 | - Total charges for employee termination, asset impairment, and other decreased to **$8 million** for Q3 FY24 (from $40 million in Q3 FY23) and to **$89 million** for 9M FY24 (from $140 million in 9M FY23)[145](index=145&type=chunk) - The 9M FY24 charges included **$99 million** for asset impairments and **$31 million** for contract termination costs, partially offset by an **$85 million gain** on the sale-leaseback of the Milpitas facility[145](index=145&type=chunk) [Note 15. Supplier Finance Program](index=37&type=section&id=Note%2015.%20Supplier%20Finance%20Program) This note describes the company's voluntary supplier finance program and outstanding payment obligations to participating vendors - The company maintains a voluntary supplier finance program allowing participating suppliers to sell their receivables to a third-party financial institution for early payment[147](index=147&type=chunk) - Outstanding payment obligations to eligible vendors under this program were **$37 million** as of March 29, 2024, included within Accounts payable[149](index=149&type=chunk) - The company does not provide any guarantees to third parties, and no assets are pledged in connection with these arrangements[148](index=148&type=chunk) [Note 16. Legal Proceedings](index=38&type=section&id=Note%2016.%20Legal%20Proceedings) This note refers to tax-related legal proceedings and management's assessment of other legal matters' financial impact - For disclosures regarding the status of statutory notices of deficiency issued by the IRS with regard to tax years 2008 through 2015, refer to Note 12, Income Tax Expense[152](index=152&type=chunk) - Management believes that any monetary liability or financial impact from other legal proceedings would not be material to the company's financial condition, results of operations, or cash flows[153](index=153&type=chunk) [Note 17. Revision of Previously Issued Financial Statements](index=39&type=section&id=Note%2017.%20Revision%20of%20Previously%20Issued%20Financial%20Statements) This note explains the revision of prior financial statements due to errors in reporting equity method investments in Flash Ventures - The company identified errors related to reporting and recording its interests in equity method investments in Flash Ventures, specifically unadjusted differences between Japanese GAAP and U.S. GAAP for certain lease-related transactions[156](index=156&type=chunk) - These errors resulted in differences in the equity in earnings from Flash Ventures recognized in Other income (expense), net, and the carrying value of the investments[156](index=156&type=chunk) - The errors were deemed immaterial to prior periods but material if corrected in the period detected, leading to the revision of previously reported financial information[43](index=43&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=42&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on Western Digital's financial condition, operational updates, financing activities, and detailed analysis of revenue, gross profit, and liquidity [Our Company](index=42&type=section&id=Our%20Company) This section describes Western Digital as a leading provider of data storage devices based on NAND flash and hard disk drive technologies, serving Cloud, Client, and Consumer markets - Western Digital is a leading developer, manufacturer, and provider of data storage devices based on NAND flash and hard disk drive technologies[167](index=167&type=chunk) - The company's broad portfolio addresses Cloud, Client, and Consumer end markets[168](index=168&type=chunk) [Key Developments](index=42&type=section&id=Key%20Developments) This section outlines significant strategic and operational events, including the planned business separation, responses to macroeconomic conditions, a subsidiary sale agreement, recent financing activities, a sale-leaseback transaction, asset impairment charges, and the resolution of tax matters [Separation of Business Units](index=42&type=section&id=Separation%20of%20Business%20Units) This section details the Board's plan to separate HDD and Flash business units into two independent public companies by the second half of calendar year 2024 - On October 30, 2023, the Board authorized a plan to separate the HDD and Flash business units into two independent public companies, targeting completion in the second half of calendar year 2024[170](index=170&type=chunk) - The separation aims to better position each business unit for innovative technology, growth opportunities, leadership, and efficient operations with distinct capital structures[170](index=170&type=chunk) [Operational Update](index=42&type=section&id=Operational%20Update) This section discusses macroeconomic impacts on demand and pricing, company measures to reduce expenses, and signs of recovery in supply-demand balance - Macroeconomic factors led to softened demand, supply-demand imbalance, and negative pricing, particularly in Flash[171](index=171&type=chunk) - The company implemented measures to reduce operating expenses, manage supply and inventory, and improve capital efficiency[171](index=171&type=chunk) - Signs of recovery in supply-demand balance began in the current quarter, with digital transformation expected to drive long-term growth[171](index=171&type=chunk) [Agreement to Sell a Majority Interest in a Subsidiary](index=43&type=section&id=Agreement%20to%20Sell%20a%20Majority%20Interest%20in%20a%20Subsidiary) This section describes the agreement to sell 80% of SanDisk Semiconductor (Shanghai) Co. Ltd. to JCET Management Co., Ltd., forming a joint venture - In March 2024, SanDisk China Limited agreed to sell **80%** of its equity interest in SanDisk Semiconductor (Shanghai) Co. Ltd. (SDSS) to JCET Management Co., Ltd., forming a joint venture[174](index=174&type=chunk) - The transaction is subject to certain conditions, and post-closing agreements will include a shareholders agreement, a supply agreement for flash-based products, and an intellectual property license agreement[174](index=174&type=chunk) [Financing Activities](index=43&type=section&id=Financing%20Activities) This section details recent financing activities, including drawing and repaying a Delayed Draw Term Loan, issuing convertible notes, and repurchasing existing notes - Drew **$600 million** from a Delayed Draw Term Loan in August 2023, repaid **$300 million** during 9M FY24, with the remaining balance maturing on June 28, 2024[175](index=175&type=chunk) - Issued **$1.60 billion** aggregate principal amount of 3.00% convertible senior notes due 2028 on November 3, 2023, with net proceeds of approximately **$1.56 billion**[176](index=176&type=chunk) - Repurchased approximately **$508 million** of existing 2024 Convertible Notes and settled the remaining **$592 million** on February 1, 2024[176](index=176&type=chunk) - Used **$155 million** of net proceeds from the 2028 Convertible Notes offering to purchase capped call contracts to hedge potential dilution[176](index=176&type=chunk) [Sale-Leaseback](index=43&type=section&id=Sale-Leaseback) This section describes the sale and leaseback of the Milpitas, California facility, generating net cash proceeds and recording a gain on the sale - Completed a sale and leaseback of its Milpitas, California facility in September 2023, receiving **$191 million** in net cash proceeds and recording an **$85 million gain** on the sale[179](index=179&type=chunk) - The lease terms include an annual rate of **$16 million** for the first year, increasing by 3% annually through January 1, 2039, with renewal options extending through December 2057[179](index=179&type=chunk) [Asset Impairment and Contract Termination Costs](index=44&type=section&id=Asset%20Impairment%20and%20Contract%20Termination%20Costs) This section outlines asset impairment charges and contract termination costs resulting from reassessed capacity development plans and project cancellations - Reassessed capacity development plans and canceled certain projects, including the Penang, Malaysia facility expansion, in Q1 FY24[180](index=180&type=chunk) - This resulted in a **$94 million impairment** of construction in progress and other assets, and **$29 million** for certain contract termination costs during the nine months ended March 29, 2024[180](index=180&type=chunk) [Tax Resolution](index=44&type=section&id=Tax%20Resolution) This section details final agreements with the IRS for tax years 2008-2015, including payments made and remaining liabilities - Reached final agreements with the IRS for tax years 2008-2012 and 2013-2015[181](index=181&type=chunk) - Made payments aggregating **$523 million** for tax and interest during the nine months ended March 29, 2024, for years 2008-2012[181](index=181&type=chunk) - A remaining liability of **$182 million** as of March 29, 2024, related to all years from 2008 through 2015, is expected to be paid within the next twelve months[181](index=181&type=chunk) [Results of Operations](index=45&type=section&id=Results%20of%20Operations) This section analyzes the company's net revenue, gross profit, operating expenses, interest, and income tax for the three and nine months ended March 29, 2024, compared to prior periods [Third Quarter and Nine Month Overview (Consolidated)](index=45&type=section&id=Third%20Quarter%20and%20Nine%20Month%20Overview%20(Consolidated)) This section provides a consolidated overview of net revenue, gross profit, operating income, and net income for the three and nine months ended March 29, 2024 **Consolidated Financial Performance (Three Months Ended, in millions)** | Metric | March 29, 2024 | March 31, 2023 | $ Change | % Change | | :----------------------------------- | :------------- | :------------- | :------- | :------- | | Revenue, net | $3,457 | $2,803 | $654 | 23% | | Gross profit | $1,001 | $286 | $715 | 250% | | Operating income (loss) | $273 | $(472) | $745 | (158)% | | Net income (loss) attributable to common shareholders | $113 | $(580) | $693 | (119)% | **Consolidated Financial Performance (Nine Months Ended, in millions)** | Metric | March 29, 2024 | March 31, 2023 | $ Change | % Change | | :----------------------------------- | :------------- | :------------- | :------- | :------- | | Revenue, net | $9,239 | $9,646 | $(407) | (4)% | | Gross profit | $1,592 | $1,795 | $(203) | (11)% | | Operating loss | $(533) | $(635) | $102 | (16)% | | Net loss attributable to common shareholders | $(881) | $(984) | $103 | (10)% | - Consolidated net revenue increased **23%** for the three months ended March 29, 2024, but decreased **4%** for the nine months ended March 29, 2024, compared to the prior year periods[183](index=183&type=chunk)[185](index=185&type=chunk) - Operating income turned positive at **$273 million** for Q3 FY24, a significant improvement from an operating loss of **$(472) million** in Q3 FY23[183](index=183&type=chunk) [Segment Information (Flash, HDD)](index=47&type=section&id=Segment%20Information%20(Flash,%20HDD)) This section details the operating performance, including revenue, gross profit, and gross margin, for the Flash and HDD segments **Segment Operating Performance (Three Months Ended, in millions)** | Metric | March 29, 2024 | March 31, 2023 | Change | % Change | | :----------------------------------- | :------------- | :------------- | :----- | :------- | | Flash Revenue | $1,705 | $1,307 | $398 | 30.5% | | Flash Gross Profit | $467 | $(65) | $532 | (818.5)% | | Flash Gross Margin | 27.4% | (5.0)% | 32.4 pp | | | HDD Revenue | $1,752 | $1,496 | $256 | 17.1% | | HDD Gross Profit | $545 | $363 | $182 | 50.1% | | HDD Gross Margin | 31.1% | 24.3% | 6.8 pp | | **Segment Operating Performance (Nine Months Ended, in millions)** | Metric | March 29, 2024 | March 31, 2023 | Change | % Change | | :----------------------------------- | :------------- | :------------- | :----- | :------- | | Flash Revenue | $4,926 | $4,686 | $240 | 5.1% | | Flash Gross Profit | $437 | $597 | $(160) | (26.8)% | | Flash Gross Margin | 8.9% | 12.7% | (3.8) pp | | | HDD Revenue | $4,313 | $4,960 | $(647) | (13.0)% | | HDD Gross Profit | $1,157 | $1,237 | $(80) | (6.5)% | | HDD Gross Margin | 26.8% | 24.9% | 1.9 pp | | - Flash revenue increased **30.5%** for Q3 FY24, while HDD revenue increased **17.1%** in the same period[187](index=187&type=chunk) - Flash gross profit significantly improved to **$467 million** in Q3 FY24 from a loss of **$(65) million** in Q3 FY23[187](index=187&type=chunk) [Disaggregated Revenue (End Market, Geography)](index=48&type=section&id=Disaggregated%20Revenue%20(End%20Market,%20Geography)) This section presents the company's revenue disaggregated by end market (Cloud, Client, Consumer) and geographic region for the periods presented **Revenue by End Market (in millions)** | End Market | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :--------- | :------ | :------ | :------ | :------ | | Cloud | $1,553 | $1,205 | $3,496 | $4,258 | | Client | $1,174 | $975 | $3,443 | $3,293 | | Consumer | $730 | $623 | $2,300 | $2,095 | **Revenue by Geography (in millions)** | Geography | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :-------- | :------ | :------ | :------ | :------ | | Asia | $1,740 | $1,353 | $4,990 | $4,533 | | Americas | $1,154 | $935 | $2,620 | $3,448 | | Europe, Middle East and Africa | $563 | $515 | $1,629 | $1,665 | - Cloud revenue increased **29%** for Q3 FY24, Client revenue increased **20%**, and Consumer revenue increased **17%**[188](index=188&type=chunk) - Asia revenue increased **29%** for Q3 FY24, Americas revenue increased **23%**, and Europe, Middle East and Africa revenue increased **9%**[188](index=188&type=chunk) [Net Revenue Analysis](index=48&type=section&id=Net%20Revenue%20Analysis) This section analyzes changes in consolidated and segment net revenue, driven by exabytes shipped, pricing, and product mix for the periods presented - Consolidated net revenue increased **23%** for Q3 FY24 due to growth in exabytes shipped and a better pricing environment, reflecting an improvement in the supply-demand balance[189](index=189&type=chunk) - Flash revenue increased **30%** for Q3 FY24, driven by a **20% increase** in exabytes sold and a **10% increase** in average selling prices per gigabyte, due to improved demand[190](index=190&type=chunk) - HDD revenue increased **17%** for Q3 FY24, resulting from a **25% increase** in exabytes sold, partially offset by a **6% decline** in average selling prices per gigabyte due to a shift in product mix[191](index=191&type=chunk) - Cloud revenue increased **29%** for Q3 FY24, driven by higher shipments of high-capacity enterprise HDD products[192](index=192&type=chunk) - Client revenue increased **20%** for Q3 FY24, primarily reflecting a **24% increase** in average selling prices per gigabyte due to improved Flash pricing[193](index=193&type=chunk) - Consumer revenue increased **17%** for Q3 FY24, driven by an increase in average selling prices per gigabyte due to improved Flash pricing and a more favorable product mix[194](index=194&type=chunk) [Gross Profit and Gross Margin Analysis](index=50&type=section&id=Gross%20Profit%20and%20Gross%20Margin%20Analysis) This section analyzes changes in consolidated and segment gross profit and gross margin, driven by pricing, underutilization charges, and product mix - Consolidated gross profit increased by **$715 million** for Q3 FY24, with gross margin increasing by **19 percentage points** YoY, primarily due to better Flash pricing and lower unabsorbed manufacturing overhead costs[199](index=199&type=chunk) - Flash gross margin increased by approximately **32 percentage points** YoY in Q3 FY24, driven by lower underutilization charges and higher average selling prices per gigabyte[199](index=199&type=chunk) - HDD gross margin increased by **7 percentage points** YoY in Q3 FY24, due to lower underutilization charges and a better product mix[199](index=199&type=chunk) - Consolidated gross profit decreased by **$203 million** for 9M FY24, primarily driven by the decline in pricing, particularly in Flash[200](index=200&type=chunk) [Operating Expenses Analysis](index=50&type=section&id=Operating%20Expenses%20Analysis) This section analyzes changes in research and development, selling, general and administrative expenses, employee termination, asset impairment, and business separation costs - Research and development (R&D) expense increased **$18 million** for Q3 FY24, primarily due to higher variable compensation, partially offset by lower headcount and reduced project spending[201](index=201&type=chunk) - Selling, general and administrative (SG&A) expense decreased **$39 million** for Q3 FY24, mainly due to lower intangible amortization and strategic review costs, partially offset by increased compensation[202](index=202&type=chunk) - Employee termination, asset impairment, and other charges decreased **$32 million** for Q3 FY24, reflecting fewer restructuring actions[203](index=203&type=chunk) - Business separation costs were **$23 million** for Q3 FY24, primarily for outside service fees to support the planned separation of Flash and HDD businesses[204](index=204&type=chunk) [Interest and Other Expense Analysis](index=51&type=section&id=Interest%20and%20Other%20Expense%20Analysis) This section analyzes changes in interest and other expense, net, primarily due to interest rates, debt balances, and other income - Total interest and other expense, net, increased **$39 million** for Q3 FY24, primarily reflecting **$28 million** of higher interest expense due to increased interest rates and a higher outstanding debt balance[205](index=205&type=chunk) - For 9M FY24, total interest and other expense, net, increased **$49 million**, mainly due to **$91 million** higher interest expense, partially offset by **$27 million** higher other income and **$15 million** higher interest income[205](index=205&type=chunk) [Income Tax Expense Analysis](index=51&type=section&id=Income%20Tax%20Expense%20Analysis) This section analyzes income tax expense, effective tax rates, and the impact of unrecognized tax benefits and R&D expense capitalization **Income Tax Information (in millions)** | Metric | Q3 FY24 | Q3 FY23 | 9M FY24 | 9M FY23 | | :----------------------------------- | :------ | :------ | :------ | :------ | | Income (loss) before taxes | $178 | $(528) | $(763) | $(816) | | Income tax expense | $43 | $43 | $74 | $159 | | Effective tax rate | 24% | (8)% | (10)% | (19)% | - The effective tax rate for Q3 FY24 was **24%** (vs. (8)% in Q3 FY23) and for 9M FY24 was **(10)%** (vs. (19)% in 9M FY23)[208](index=208&type=chunk) - The effective tax rate for Q3 and 9M FY24 includes a net increase of **$35 million** and **$48 million**, respectively, to the liability for unrecognized tax benefits, partially offset by decreases from IRS calculation alignments[208](index=208&type=chunk) - The mandatory capitalization and amortization of R&D expenses, as required by the 2017 Act, is expected to materially increase cash tax payments in future profitable periods[210](index=210&type=chunk) [Liquidity and Capital Resources](index=53&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses Western Digital's cash flow, material cash requirements, debt, off-balance sheet arrangements, and liquidity, including tax and R&D impacts [Statements of Cash Flows Summary](index=53&type=section&id=Statements%20of%20Cash%20Flows%20Summary) This section summarizes net cash provided by or used in operating, investing, and financing activities for the nine months ended March 29, 2024 **Net Cash Provided by (Used in) Activities (Nine Months Ended, in millions)** | Activity | March 29, 2024 | March 31, 2023 | | :----------------------------------- | :------------- | :------------- | | Operating activities | $(660) | $(340) | | Investing activities | $31 | $(620) | | Financing activities | $506 | $856 | | Effect of exchange rate changes on cash | $(6) | $(3) | | Net decrease in cash and cash equivalents | $(129) | $(107) | - Net cash used in operating activities increased to **$(660) million** for 9M FY24, largely due to **$523 million** in tax and interest payments related to IRS settlements[213](index=213&type=chunk) - Net cash provided by investing activities significantly improved to **$31 million** for 9M FY24 from **$(620) million** used in 9M FY23[213](index=213&type=chunk) - The company expects capital expenditures for 2024 to be less than 2023, reflecting efforts to scale back and consolidate production lines[216](index=216&type=chunk) - Management believes current cash and available revolving credit facility will be sufficient to meet working capital, debt, and capital expenditure needs for at least the next twelve months and the foreseeable future[217](index=217&type=chunk) [Short- and Long-term Liquidity (Material Cash Requirements)](index=56&type=section&id=Short-%20and%20Long-term%20Liquidity%20(Material%20Cash%20Requirements)) This section details the company's material cash requirements, including long-term debt, interest, Flash Ventures commitments, and mandatory deemed repatriation tax **Material Cash Requirements as of March 29, 2024 (in millions)** | Category | Total | Remaining Three Months of 2024 | 2-3 Years (2025-2026) | 4-5 Years (2027-2028) | More than 5 Years (Beyond 2028) | | :----------------------------------- | :---- | :----------------------------- | :-------------------- | :-------------------- | :------------------------------ | | Long-term debt, including current portion | $7,825 | $338 | $2,600 | $3,887 | $1,000 | | Interest on debt | $1,151 | $79 | $734 | $238 | $100 | | Flash Ventures related commitments | $2,463 | $322 | $1,576 | $572 | $(7) | | Operating leases | $593 | $17 | $135 | $112 | $329 | | Purchase obligations and other commitments | $522 | $45 | $268 | $79 | $130 | | Mandatory deemed repatriation tax | $466 | $0 | $466 | $0 | $0 | | **Total** | **$13,020** | **$801** | **$5,779** | **$4,888** | **$1,552** | - Total material cash requirements were **$13,020 million** as of March 29, 2024, with **$801 million** due in the remaining three months of 2024[225](index=225&type=chunk) - Long-term debt, including the current portion, accounts for **$7,825 million** of the total cash requirements[225](index=225&type=chunk) - Flash Ventures related commitments represent **$2,463 million** of the total, and mandatory deemed repatriation tax obligations total **$466 million**, payable in 2025 and 2026[225](index=225&type=chunk) [Operating Activities Cash Flow Analysis](index=54&type=section&id=Operating%20Activities%20Cash%20Flow%20Analysis) This section analyzes net cash used for changes in operating assets and liabilities and improvements in the cash conversion cycle - Net cash used for changes in operating assets and liabilities was **$405 million** for 9M FY24, compared to **$296 million** for 9M FY23, largely reflecting payments made on the IRS matter[220](index=220&type=chunk) - The cash conversion cycle improved to **103 days** for Q3 FY24 from **139 days** for Q3 FY23[220](index=220&type=chunk) - Days sales outstanding (DSO) decreased by **5 days**, days in inventory (DIO) decreased by **25 days**, and days payable outstanding (DPO) increased by **6 days** for Q3 FY24 compared to the prior year period[221](index=221&type=chunk) [Investing Activities Cash Flow Analysis](index=54&type=section&id=Investing%20Activities%20Cash%20Flow%20Analysis) This section analyzes net cash provided by investing activities, driven by Flash Ventures proceeds and capital expenditures - Net cash provided by investing activities was **$31 million** for 9M FY24, a significant improvement from **$620 million** used in 9M FY23[222](index=222&type=chunk) - This was primarily driven by **$207 million** in net proceeds from Flash Ventures activity, partially offset by **$176 million** in capital expenditures, net of proceeds from asset disposals (including the Milpitas sale-leaseback)[222](index=222&type=chunk) [Financing Activities Cash Flow Analysis](index=54&type=section&id=Financing%20Activities%20Cash%20Flow%20Analysis) This section analyzes net cash provided by financing activities, including debt issuance, repayments, and capped call purchases - Net cash provided by financing activities was **$506 million** for 9M FY24, down from **$856 million** for 9M FY23[223](index=223&type=chunk) - Sources included **$2.50 billion** from the issuance of 2028 Convertible Notes, the drawdown of the Delayed Draw Term Loan, and draws on the revolving credit facility[223](index=223&type=chunk) - Uses included **$505 million** to repurchase 2024 Convertible Notes, **$1.27 billion** for debt repayments, and **$155 million** for the purchase of capped calls[223](index=223&type=chunk) [Off-Balance Sheet Arrangements](index=55&type=section&id=Off-Balance%20Sheet%20Arrangements) This section confirms the absence of material off-balance sheet financing arrangements, except for Flash Ventures commitments and indemnification provisions - The company has no other material off-balance sheet financing arrangements or liabilities, guarantee contracts, or retained/contingent interests in transferred assets, other than Flash Ventures commitments and certain indemnification provisions[224](index=224&type=chunk) - Flash Ventures and the Unis Venture are the only variable interest entities in which the company has an interest[224](index=224&type=chunk) [Dividend Rights](index=56&type=section&id=Dividend%20Rights) This section states that the Series A Preferred Stock is entitled to cumulative preferred dividends - The Series A Preferred Stock, issued in January 2023, is entitled to cumulative preferred dividends[226](index=226&type=chunk) [Debt](index=56&type=section&id=Debt) This section details liability-management actions, convertible note terms, available credit, and compliance with financial covenants - The company undertook several liability-management actions in Q2 and Q3 FY24, including issuing 2028 Convertible Notes, repurchasing/settling 2024 Convertible Notes, and partially repaying the Delayed Term Loan[227](index=227&type=chunk) - The 2028 Convertible Notes are convertible at the option of any holder from August 15, 2028, or earlier under certain conditions, with the company having the option to settle in cash, common stock, or a combination[228](index=228&type=chunk) - As of March 29, 2024, **$2.24 billion** was available for borrowing under the revolving credit facility until January 2027[229](index=229&type=chunk) - The company was in compliance with all financial covenants (leverage ratio and minimum liquidity) for its credit facilities as of March 29, 2024[230](index=230&type=chunk) [Flash Ventures](index=57&type=section&id=Flash%20Ventures) This section describes the company's guarantees for Flash Ventures' equipment lease agreements and compliance with covenants - The company guarantees half or all of the outstanding obligations under Flash Ventures' equipment lease agreements[231](index=231&type=chunk) - As of March 29, 2024, the company was in compliance with all covenants under these Japanese lease facilities[231](index=231&type=chunk) [Purchase Obligations and Other Commitments](index=57&type=section&id=Purchase%20Obligations%20and%20Other%20Commitments) This section describes the company's purchase orders and long-term agreements with fixed future commitments - The company enters into purchase orders for components (generally cancellable prior to shipment) and long-term agreements with fixed future commitments contingent on certain conditions[232](index=232&type=chunk) [Mandatory Deemed Repatriation Tax](index=57&type=section&id=Mandatory%20Deemed%20Repatriation%20Tax) This section details estimated mandatory deemed repatriation tax obligations and their payment schedule **Mandatory Deemed Repatriation Tax Obligations (March 29, 2024, in millions)** | Year | Amount | | :--- | :----- | | 2025 | $265 | | 2026 | $201 | | Total | $466 | - Estimated mandatory deemed repatriation tax obligations total **$466 million**, payable in 2025 and 2026[233](index=233&type=chunk) [Unrecognized Tax Benefits](index=57&type=section&id=Unrecognized%20Tax%20Benefits) This section details the liability for unrecognized tax benefits, including accrued interest and penalties, and potential cash payments - The liability for unrecognized tax benefits (excluding accrued interest and penalties) was **$708 million** as of March 29, 2024, with accrued interest and penalties of **$173 million**[234](index=234&type=chunk) - Approximately **$719 million** of the aggregate unrecognized tax benefits, including interest and penalties, could result in potential cash payments[234](index=234&type=chunk) - A remaining liability of **$182 million** related to IRS settlements for years 2008-2015 is expected to be paid within the next twelve months[235](index=235&type=chunk) - The company expects to realize approximately **$164 million** in reductions to mandatory deemed repatriation tax obligations and tax savings from interest deductions due to these settlements[236](index=236&type=chunk) [Mandatory Research and Development Expense Capitalization](index=58&type=section&id=Mandatory%20Research%20and%20Development%20Expense%20Capitalization) This section highlights the impact of the 2017 Act's R&D expense capitalization requirement on future cash tax payments - Since the beginning of 2023, the 2017 Act requires capitalization and amortization of R&D expenses, which is expected to result in materially higher cash tax payments in future profitable periods if not repealed or modified[237](index=237&type=chunk) [Foreign Exchange Contracts](index=58&type=section&id=Foreign%20Exchange%20Contracts) This section describes the company's use of foreign exchange contracts to hedge against currency fluctuations on assets, liabilities, and commitments - The company purchases foreign exchange contracts to hedge the impact of foreign currency fluctuations on certain underlying assets, liabilities, and commitments for operating expenses and product costs denominated in foreign currencies[238](index=238&type=chunk) [Indemnifications](index=58&type=section&id=Indemnifications) This section describes the company's indemnification provisions to various parties and the historical immateriality of associated costs - The company provides indemnifications to customers, vendors, lessors, business partners, and officers/directors for various matters, including breach of agreements, products/services, environmental compliance, or intellectual property infringement claims[239](index=239&type=chunk) - The maximum potential amount under these indemnification agreements is not determinable, but historically, the company has not incurred material costs[240](index=240&type=chunk) [Recent Accounting Pronouncements](index=58&type=section&id=Recent%20Accounting%20Pronouncements) This section refers to Note 2 of the Condensed Consolidated Financial Statements for details on recently issued and adopted accounting pronouncements - For a description of recently issued and adopted accounting pronouncements, refer to Part I, Item 1, Note 2 of the Condensed Consolidated Financial Statements[241](index=241&type=chunk) [Critical Accounting Policies and Estimates](index=58&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section confirms no material changes in the company's critical accounting policies and estimates since the prior annual report - There have been no material changes in the company's critical accounting policies and estimates from those disclosed in its Annual Report on Form 10-K for the year ended June 30, 2023[243](index=243&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details the company's exposure to market risks, specifically foreign currency risk and interest rate risk, and provides sensitivity analyses for potential financial impacts [Foreign Currency Risk](index=59&type=section&id=Foreign%20Currency%20Risk) This section details the company's exposure to foreign currency risk and provides a sensitivity analysis for potential financial impacts - 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 **$255 million** as of March 29, 2024 (compared to $285 million at June 30, 2023)[245](index=245&type=chunk) [Interest Rate Risk](index=59&type=section&id=Interest%20Rate%20Risk) This section details the company's exposure to interest rate risk and provides a sensitivity analysis for potential financial impacts - As of March 29, 2024, the company had **$2.9 billion** in variable rate debt outstanding[246](index=246&type=chunk) - A **one percent increase** in the variable rate of interest would increase annual interest expense by **$29 million**[246](index=246&type=chunk) [Item 4. Controls and Procedures](index=59&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures and confirms no material changes in internal controls over financial reporting during the third quarter of fiscal year 2024 [Evaluation of Disclosure Controls and Procedures](index=59&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section reports on the effectiveness of the company's disclosure controls and procedures - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective** as of March 29, 2024[247](index=247&type=chunk) [Changes in Internal Controls over Financial Reporting](index=59&type=section&id=Changes%20in%20Internal%20Controls%20over%20Financial%20Reporting) This section confirms no material changes in internal controls over financial reporting during the third quarter of fiscal year 2024 - There has been no change in internal control over financial reporting during the third quarter of fiscal year 2024 that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting[248](index=248&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=60&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to the detailed disclosures on tax-related legal proceedings in Note 12 of the financial statements [Item 1A. Risk Factors](index=60&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to previously disclosed risk factors, while acknowledging the potential for additional unknown risks [Item 5. Other Information](index=60&type=section&id=Item%205.%20Other%20Information) This section provides updates on insider trading arrangements and the addition of new guarantors for the company's debt obligations [Insider Trading Arrangements](index=60&type=section&id=Insider%20Trading%20Arrangements) This section reports the termination of a Rule 10b5-1 Plan by a former Executive Vice President - Michael Ray, a former Executive Vice President, Chief Legal Officer, and Secretary, terminated a Rule 10b5-1 Plan on February 23, 2024[253](index=253&type=chunk) [Additional Guarantors](index=60&type=section&id=Additional%20Guarantors) This section details the addition of SanDisk Corporation and SanDisk Technologies, Inc. as unconditional guarantors for the company's debt obligations - On April 26, 2024, SanDisk Corporation (SDC) and SanDisk Technologies, Inc. (SDT) became unconditional guarantors for the company's revolving credit facility, Term Loan A-2, and Delayed Draw Term Loan[254](index=254&type=chunk) - The Additional Guarantors will also guarantee obligations under the 4.750% Senior Notes due 2026 and the 2028 Convertible Notes[255](index=255&type=chunk) - The obligations under the credit facilities and certain senior notes will be secured by a first-priority lien on substantially all the assets and properties of the Additional Guarantors[256](index=256&type=chunk) [Item 6. Exhibits](index=61&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with or incorporated by reference into the Quarterly Report on Form 10-Q, including corporate governance documents, joint venture agreements, certifications, and XBRL data files [SIGNATURES](index=63&type=section&id=SIGNATURES) This section contains the required signatures for the Quarterly Report on Form 10-Q, confirming its due authorization and filing

Financial Data and Key Metrics Changes - Western Digital reported revenue of $3.5 billion, a 40% sequential increase and a 23% year-over-year increase [17] - Non-GAAP gross margin was 29.3%, improving by 13.8 percentage points sequentially and 18.7 percentage points year-over-year [20] - Non-GAAP earnings per share was $0.63, exceeding expectations [5][17] Business Line Data and Key Metrics Changes - Flash revenue was $1.7 billion, up 2% sequentially and 30% year-over-year, driven by an 18% increase in ASP despite a 15% decrease in bit shipments [19] - HDD revenue reached $1.8 billion, up 28% sequentially and 17% year-over-year, with exabyte shipments increasing by 41% and average price per unit rising by 19% to $145 [19] - Nearline bit shipments for HDD were 108 exabytes, up 60% sequentially [18] Market Data and Key Metrics Changes - Cloud represented 45% of total revenue at $1.6 billion, up 45% sequentially and 29% year-over-year [18] - Client revenue was $1.2 billion, up 5% sequentially and 20% year-over-year [18] - Consumer revenue was $0.7 billion, down 13% sequentially but up 7% year-over-year [18] Company Strategy and Development Direction - The company is focused on separating its flash and HDD businesses, with completion expected in the second half of the calendar year [7] - Emphasis on operational efficiency and innovation to capitalize on AI-related storage demand [6][14] - The strategy includes optimizing bit shipments to high-value markets and maintaining capital discipline [14][15] Management Comments on Operating Environment and Future Outlook - Management expressed optimism about the recovery in demand for enterprise SSDs and the potential for growth driven by AI workloads [13][36] - The company anticipates flat bit shipments in the fiscal fourth quarter, with ASP increases expected to drive revenue growth [14][22] - Management highlighted the importance of maintaining a disciplined approach to capital spending and profitability improvement [24][25] Other Important Information - Operating expenses were $632 million, up 13% sequentially, primarily due to higher variable compensation [21] - Cash and cash equivalents were $1.9 billion, with total liquidity of $4.1 billion [22] - The company expects revenue guidance for the fiscal fourth quarter to be between $3.6 billion and $3.8 billion [22] Q&A Session Summary Question: HDD gross margins and future growth - Management indicated satisfaction with HDD portfolio performance and expects continued profitability driven by product quality and cost control [28] Question: NAND bit growth expectations - Management confirmed mid to high teens demand for the NAND market in calendar 2024, with a focus on optimizing supply for profitability [32] Question: Gross margin improvement offsets - Management acknowledged expected improvements in margins but noted various factors influencing the overall margin guidance [34] Question: AI demand impact on SSDs - Management discussed increasing enterprise SSD demand driven by AI, with a focus on higher capacity products [36] Question: Nearline HDD performance and sustainability - Management attributed HDD performance to product quality and technology, expressing confidence in sustaining market share [60] Question: AI's effect on HDD and SSD applications - Management clarified that AI is driving new use cases for SSDs without cannibalizing HDD applications, emphasizing growth in both segments [64]