Good afternoon, and thank you for standing by. Welcome to Western Digital's second quarter fiscal 2025 conference call. Presently, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Peter Andrew, Vice-President, Financial Planning and Analysis, and Investor Relations. You may begin, sir.

Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current assumptions and expectations and, as such, does include risks and uncertainties. These forward-looking statements include expectations for our product portfolio, our business plans and performance, the separation of our Flash and HDD businesses, ongoing market trends, and our future financial results. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K and our other filings with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially from expectations. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David for introductory remarks.

Thanks, Peter. Good afternoon, everyone, and thank you for joining the call to discuss our second quarter fiscal year 2025 performance. As many of you know, the completion of our separation later in the fiscal third quarter, I will become the CEO of SanDisk. As a result, this will be my last earnings call as the CEO of Western Digital. Before we dive into our second quarter results, I want to express my gratitude to our employees, customers, partners, and shareholders for their unwavering support throughout my tenure. It’s been an honor and a privilege to serve as the CEO of Western Digital, and I’m immensely proud of what we’ve accomplished together to position both of our franchises for long-term success as standalone companies. Now onto the results. For the second fiscal quarter, Western Digital delivered revenue of $4.3 billion, non-GAAP gross margin of 35.9%, and non-GAAP earnings per share of $1.77. Our commitment to enduring quality and reliability, driven by our industry-leading innovation and diversified portfolio, has enabled us to navigate the current market's dynamics effectively. While our HDD business is experiencing robust growth, particularly in high-capacity enterprise drives, our Flash segment faces temporary headwinds due to pricing pressure. Despite these challenges, we are strategically well-positioned to capitalize on growing long-term storage demand from the AI data cycle. Our HDD business continues to perform well, propelled by our cutting-edge Ultra SMR technology. This innovation allows us to push the boundaries of storage capacity while maintaining the gold standard in reliability, quality, and performance. The market has responded to our products enthusiastically, driving our HDD revenues to a 12-quarter high with a record non-GAAP gross margin. We're seeing increasing adoption of our newer and higher-density drives, underscoring their ability to meet the evolving demands of the storage market. I'm pleased to report that we're in the final stages of our plan to separate our Flash and HDD businesses and expect this to be completed on schedule. During the second fiscal quarter, we achieved two crucial milestones: completing our Form-10 filing and finalizing key financing activities necessary for the separation. Thanks to the meticulous planning and dedication of our teams, we're ready to operate as independent entities. We invite you to join us for our upcoming Investor Days on February 11th for SanDisk and February 12th for Western Digital, where our respective management teams will share their strategic visions and demonstrate how each business will drive shareholder value as standalone entities. We anticipate that within a few weeks after the Investor Days, Western Digital and SanDisk shares will begin trading as independent companies. Turning to our business units. In Flash, revenue was stable and in line with expectations. Strength in client and consumer resulted in better than expected bit shipments. However, increased pricing pressure due to short-term oversupply from increased utilization rates throughout calendar year 2024, coupled with customers working down inventory, offset our bit shipment results. Cloud pricing was a positive given continued AI-driven demand. Taken together, the result was a sequential decline in profitability. In fiscal year 2024, consumer experienced growth across revenue units and gross margins as the end market benefited from a market recovery. While revenue and units grew sequentially in the fiscal second quarter of 2025, gross margin declined due to pricing pressure caused by oversupply in the broader NAND market. Despite this recent softening, our external SSD drive shipments grew 50% sequentially. Our efforts in bolstering consumer preference, expanding partnerships, and launching our new creator series at CES all provide SanDisk with the right foundation to drive organic demand and margin expansion. Now turning to the Flash outlook, we believe that we are currently in a mid-cycle pause. In the fiscal third quarter, we expect bit shipments to be down, with stronger demand in data center and mobile more than offset by lower bit shipments in PC OEM and consumer. Given the stronger-than-anticipated pricing headwinds, we are proactively managing production levels to respond to ongoing inventory adjustments and evolving demand dynamics across our end markets. By optimizing utilization and total capacity, with a key focus on delivering premium nodes, we aim to accelerate stabilizing profitability in this dynamic market. In this new era of NAND, with lower utilization and a less intense CapEx environment relative to historical periods, we are seeing supply growth appropriately responding to the current short-term headwinds affecting demand, and we expect to see a recovery as we move through calendar year 2025. Specifically, we expect client inventory digestion to continue into the first half of calendar year 2025, with normalization in the second half paving the way for recovery that will enable the AI-driven PC ramp in the Windows refresh cycle to gain momentum. In data center, we project Cloud CapEx to continue to grow in calendar year 2025, and we continue to make good progress qualifying our cloud products with customers to capture our fair share of this market. Lastly, our consumer business continues to perform well, and while we expect seasonal weakness in bit shipments, our premium brands are providing ASP support to the overall portfolio. We look forward to discussing our views on the Flash business at the SanDisk Investor Day on February 11th. The team and I will discuss why we believe that our markets are strong and growing, how rapid adoption of AI is creating new opportunities, what differentiates SanDisk, and how the Flash industry is evolving. We are very excited and believe you will be as well. Our HDD business delivered another quarter of strong performance, with data center revenue hitting an all-time high. This achievement underscores the strength of our near-line storage solutions and how well positioned we are to benefit from ongoing market tailwinds. The HDD business also achieved record gross margins as customers continued to increase the adoption of our higher capacity drives, and we shared in the TCO benefit provided by our innovative products. We are operating in an environment where demand for our product exceeds supply. To proactively manage this, we continually work with our customers to get visibility into their future needs. In these tight conditions, we might see volatility in shipments from quarter to quarter, but over the longer term, we continue to progress toward a state of predictable business operations and sustainable profitable growth. Turning to the HDD outlook. In the fiscal third quarter, we anticipate continued momentum in data center to drive strong demand across our near-line portfolio. As I mentioned, our supply is now very tight, which is helping us get better visibility into long-term customer demand and enabling better planning for product deliveries in the coming quarters. Our customers increasingly appreciate the complexity of the HDD supply chain and the need for us to better anticipate future demand. As we continue to broaden adoption of our Ultra SMR portfolio at our largest customers and complete the qualification and ramp of our newest drives, we anticipate profitability will continue to improve in the coming quarters. The HDD business's positive structural transformation continues to gain momentum. We remain focused on operational excellence, efficient cost structure, and a strong commitment to maintaining a balanced supply-demand dynamic. We are well-positioned to continue delivering the most profitable and innovative product portfolio while establishing long-term industry leadership through our earnings potential. During the upcoming WD Investor Day on February 12, Irving and his team will provide a detailed overview of HDD's strategic roadmap. I want to take a moment to acknowledge the CFO transition announcement that we made two weeks ago. After nearly three years with us, Wissam will be moving on to another opportunity. Wissam has been an outstanding partner and leader at Western Digital, helping us successfully navigate the company through the ups and downs of our end markets and build a strong financial profile at both HDD and Flash. On behalf of the Board and everyone at Western Digital, I want to thank Wissam for his many contributions, including seeing us through the separation, and wish him the best of luck in his next role. Let me now turn the call over to Wissam, who will discuss our fiscal second quarter results.

Thank you, David, and good afternoon everyone. In the fiscal second quarter, Western Digital delivered results generally within the guidance ranges we gave in October in the face of a challenging pricing environment in Flash. Total revenue for the quarter was $4.3 billion, up 5% sequentially and 41% year-over-year. Non-GAAP earnings per share was $1.77. Looking at end markets, Cloud represented 55% of total revenue at $2.3 billion, up 6% sequentially and more than doubling year-over-year. On a sequential basis, the growth was due to an increase in near-line HDD shipments, while Flash was down. On a year-over-year basis, both HDD and Flash revenue grew. Client represented 27% of total revenue at $1.2 billion, down 3% sequentially and up 4% year-over-year. Compared to last quarter, Flash revenue declined as bit shipment growth was offset by pricing pressure, while HDD revenue was flat. Year-over-year, an increase in Flash revenue was primarily due to higher ASPs as bit shipments declined and was partially offset by lower HDD revenue. Consumer represented 18% of revenue at $0.8 billion, up 14% sequentially and down 8% year-over-year. Sequentially, both Flash and HDD bit shipments grew and drove revenue growth while pricing was a headwind. Year-over-year, the decrease was due to lower shipments in Flash and HDD and pricing in Flash. Turning now to revenue by business unit. In the fiscal second quarter, Flash revenue was $1.9 billion, flat from last quarter and up 13% year-over-year. Sequentially, Flash ASPs decreased 13% on a like-for-like basis and 10% on a blended basis. Bit shipments were up 9% from the previous quarter and down 2% compared to last year. HDD revenue was $2.4 billion, up 9% sequentially and 76% year-over-year. The strength of our near-line portfolio delivered exabyte growth of 7% on a sequential basis and 93% versus a year ago. Average price per unit increased 5% sequentially to $172. Near-line bit shipments were at a record level of 154 exabytes. Moving to the rest of the income statement, please note my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal second quarter was 35.9%, which was below our guidance range. Sequentially, gross margin was down 2.6 percentage points and up 20.4 percentage points from a year ago. Flash gross margin was 32.5%, down 6.4 percentage points sequentially due to pricing pressure late in the quarter. Flash gross margin was up 24.6 percentage points from a year ago. In HDD, strong demand for near-line drives resulted in gross margin improvement of half a percentage point on a sequential basis to 38.6% and 13.8 percentage points from a year ago. Operating expenses were down sequentially at $674 million, including the synergy expenses of $17 million. Lower than expected operating expenses were due to the synergy costs being lower than expectations, while progress towards executing the SanDisk spin remains on track. In addition, variable compensation was lower than expectations, aligned with business performance. Our results demonstrate continued focus on cost discipline while making progress towards the completion of the business separation. Operating income was $864 million, down 2% sequentially, driven by lower gross margin, partially offset by lower operating expenses. Operating margin was 20.2%, down approximately 140 basis points sequentially, but favorable compared to operating losses posted last year. Income tax expense was $105 million, and the effective tax rate was 14%. Earnings per share was $1.77. Operating cash flow for the fiscal second quarter was $403 million, and free cash flow generation was $335 million. Cash capital expenditures, which include the purchase of property, plant, and equipment, and activity related to flash joint ventures on the cash flow statement, represented a cash outflow of $68 million. Fiscal second quarter inventory was largely flat at $3.4 billion, with days of inventory declining by 9 days to 112 days. A decrease in HDD inventory was offset by an increase in flash inventory. Gross Debt outstanding was $7.4 billion at the end of fiscal second quarter. Cash and cash equivalents were $2.3 billion, and total liquidity was $4.5 billion, including undrawn revolver capacity. During the fiscal second quarter, we successfully arranged financing for the upcoming separation of our business, which is a key milestone in the progress towards the spin of SanDisk. I'll now turn to the fiscal third quarter non-GAAP guidance for Western Digital on a combined basis. We anticipate overall revenue to be in the range of $3.75 billion to $3.95 billion. Gross margin is expected to be between 31.5% and 33.5%. We expect operating expenses to increase slightly to a range of $700 million to $720 million, including the synergy costs of $25 million to $40 million as we finalize the separation of our businesses. Interest and other expenses are anticipated to be approximately $100 million. The tax rate is expected to be between 14% and 16%. We expect EPS of $0.90 to $1.20 based on approximately 358 million shares outstanding. We are looking forward to both of our Western Digital and SanDisk Investor Days in just a couple of weeks to discuss each business in more specific detail. For now, I provide directional perspective on expectations from each business in the fiscal third quarter. For Flash, we expect revenue to decline sequentially in the mid-teens percentage and gross margin to decrease due to lower blended ASPs, higher cost per bit, and underutilization charges of $20 million to $30 million as we manage our supply. Flash bits are expected to decline sequentially by mid-single-digit percentage. We also expect underutilization charges to continue in the June quarter. For HDD, we expect revenue to decrease sequentially by mid-to-high single-digit percentage on lower volume. While gross margin is expected to improve by approximately 50 basis points as average price per unit continues to trend higher. We are focused on executing the final stages of the spin and navigating current market dynamics while continuing to deliver robust financial performance. I would like to close by saying that it has been a tremendous honor to partner with David and the fantastic team at Western Digital. I'm extremely proud of the team's accomplishments over the past three years. There is no doubt in my mind that both the HDD and Flash businesses are strong and resilient, and both will continue to provide industry-leading products to the marketplace while unlocking significant shareholder value for the respective shareholders. With that, I'll now turn the call back over to David.

Thanks, Wissam. Our results this quarter reflect our efforts to actively manage near-term cyclicality across our end, knowing we have a solid foundation for future success that is underscored by our industry-leading product roadmap. As we complete the separation, I am extremely confident in our respective teams' ability to drive shareholder value in both the HDD and Flash businesses. Both companies will continue to be driven by the structural long-term tailwinds of the AI data cycle and our ability to consistently offer our customers the most compelling and innovative storage solutions. Before we move to the Q&A session, I'd like to highlight that we will also be joined today by Irving Tan, who will step into the role of CEO at Western Digital, and Luis Visoso, who will assume the position of CFO at SanDisk. Peter, let's start the Q&A.

Thank you. We will now begin the question and answer portion of today's call. One moment please for the first question. Today's first question comes from C.J. Muse at Cantor Fitzgerald. Please go ahead.

Yes, good afternoon. Thank you for taking the question. I guess first question on the HDD side, you talked about a sequential decline for the March quarter. Curious, is that a function of simply lower client and consumer units, or are you also seeing a pause in cloud? And within that construct, can you speak a bit more about your prepared remarks related to expectations for volatility, Q-on-Q, and HDD? Trying to better understand what's really driving that underlying change.

Hey C.J., thanks for the question. I'm going to let Irving take that one.

Thanks, David. Hi C.J., look, I think we've seen over five quarters of very strong positive growth in revenue, and the outlook for the business remains healthy. There will be quarter-on-quarter variations as we support customers with the timing of their deployments and also balance the supply-demand tightness that we have. So that's really what's driving the slight decline in Q3.

Great, very helpful. And I guess Dave, a question for you two-part. First, what gives you the confidence that this is just a mid-cycle pause? And then within the spin of the NAND asset, are there any other sort of technical regulatory things that we should be thinking about that are necessary to get that done in the next four weeks? Thank you very much.

On the spin, you'll see more about that literally in the next couple of days. We feel really good about that being on track. Wissam can go through some of the dates here in a minute. Look, on the NAND we’re still seeing bits were up 9% this quarter. They're going to be down just mid-single digits next quarter. We're still seeing good volume. We think some of the demand that we expected to materialize in PC and smartphone has moved to the right a couple of quarters. I don't think that's any secret. We, the industry probably overproduced a little bit too much. We don't see a big drop in the volume. We see still good, good discussions with our customers. It's just the market's oversupplied right now. So we saw some pricing headwinds, especially as we move through the quarter which we talked about. Going forward, we expect pricing headwinds next quarter, but we expect them to be lower than we saw this quarter. So we feel like this is a pause but we're also going to take action. As we talked in the past, this new era of NAND, we're going to be much more responsive to the demand signals we see in the market and adjust our production. So we're going to go ahead and do that and take a little bit of supply out of the market as we move through 2025, and we think that will support pricing stabilization coming back faster. So feel good about where the overall business is. We've had a number of quarters of an upcycle now. Really quite unusual when you look back, we have a chart here that goes all the way back to '07 and the sequential price changes in the market. And it's very, very unusual. It's not unprecedented to see this many quarters of up in a row without some down. So, the thing here now is just to stabilize the market and we'll do that through the supply side, and then we'll get back to what we think is a strong market as we move through 2025 and into 2026.

And C.J., just to follow on David's comments around the spin and the timing, the record date for the distribution will be February 12th, and the date of the distribution will be on or about February 21st. The shares of SanDisk will be trading in the active markets shortly after.

Thanks a lot.

Thanks, C.J.

Thank you. Our next question comes from Aaron Rakers at Wells Fargo. Please go ahead.

Thank you for taking my question. Good afternoon. Regarding the NAND gross margins, I'm curious about the $20 to $30 million you mentioned as underutilization charges in the current quarter. Looking back, it seems that the last time you reduced capacity, it represented around 10% to 15% of the underutilization charges from about a year ago. Is that an accurate way to assess the amount of capacity you’re taking out? Alternatively, if I compare it to some of your competitors who are reportedly reducing their bit supply by a certain percentage, does that reflect what you are doing as well?

Yes, we're not going to go into exactly how much we're taking out. That's a dynamic decision we make week-over-week, month after month as we look at the business. I think unpacking the gross margin is an important discussion as we go into next quarter. I think one thing for all of you guys to recognize, we're going to see a quarter of cost increases. We managed to that 15% cost decline. We talked about the new era NAND that may be more like 12% as we go forward over the next several years. But we had a very good start to the year in cost downs, and now we're going to see Q3, we're actually up low single digits. So that's a big impact on gross margin. You add underutilization charges on that, and then some ASP headwinds as well. Like I said, as we sit here today, we see the ASP headwinds to be moderating versus what we saw this quarter and then bits down mid-single digits. So that kind of gives you unpacking a little bit the gross margin number going forward.

Yes, that's very helpful. And just to kind of build on that, is there any way to frame how we should think about the underutilization impact into the fiscal fourth quarter? And just to be clear, is there any risk of inventory charges being taken based on the current market dynamics? Thank you.

I think you can probably think about Q4. They'll come up just. They'll come up a little bit from where we were in what we expect in Q3. Maybe think about it, maybe a 60-40 kind of split or a 40-60 kind of split.

Yes. And on the inventory, Aaron, look, it all depends on what pricing does. But as of the end of Q2, our inventory is appropriately stated.

Okay, thank you.

You're welcome.

Thank you. And our next question comes from Wamsi Mohan with Bank of America. Please go ahead.

Yes, thank you so much. Dave or Irving. Can you talk about just at a high level where we are in the HDD cycle overall? I think, Dave, you said in your prepared remarks a few times that demand is exceeding supply. Like the calendar Q1 guide is to be down sequentially slightly. So can you help us unpack if that is just seasonality, is there something beyond that? And how should we think about pricing as we think about 2025 and maybe the maximum amount of exabytes that you can ship, given that supply is so tight at the current time? And I will quick follow up.

I'm going to let Irving talk about 2025. I have enormous confidence in this business and enormous confidence in Irving driving it forward and the entire team. Going into the next quarter, you're going to see some revenue, revenue down a little bit on volume. Look, it's been quite a run. I mean, we've got to manage the supply chain, all the components. We do have much more visibility to where our customers are going. It's just order flow. We continue, we're going to continue to see margin improving going into next quarter. So structurally, I think the business is just in a fantastic place, we're getting more visibility, we have increasing profitability, and we've got a lot of tailwinds from AI. More demand than supply. But let me let Irving talk about how he sees 2025 playing out.

Yes, thanks, David. As I mentioned briefly, we see the outlook for 2025 still being relatively robust going forward. And as David mentioned, there will be some slight variations quarter-on-quarter, but the outlook for the rest of the year is relatively robust. In terms of pricing, as Wissam alluded to as well, we're looking at pricing to remain stable to slightly up for Q3. And in terms of exabytes, it's really a function of mix. As we look forward to qualifying our new 32 terabyte drives, that gives us more capacity to provide into the market from an exabyte perspective as well.

Okay, great. Thank you so much.

Thanks.

As a follow-up, can I just ask quickly, on the NAND side, I think you used the word temporary weakness? And I'm just wondering, as you think about some of the actions that you're taking from a supply standpoint, what kind of assumptions are you making around demand recovery, whether it be on the PC side or smartphone side, into maybe the second half of the year? And is that the timeframe when you're thinking that the market gets tight again? Thank you.

Yes, I mean, we think as we move through 2025, we're going to see, by the time we get done with 2025, we'll see PC units up, we'll see smartphone units up. Data center continues to remain strong. So we, the demand side, we see that mid-teens demand for the calendar year, we see the market slightly undersupplied to that. Quite frankly, you didn't ask the question. But we see a bigger step up in demand in 2026. But let's, let's stay with 2025 for now. So, so as I said earlier, we still see good volume in the business. Discussions with customers are very good. We're just in a spot right now where some of that demand we thought was going to come in the PC and smartphone market around this time has been pushed out a little bit. And so we're going to make some adjustments in our supply to support pricing, and we think we'll be good as we move throughout 2025. We're very, very optimistic on where we're at from when we again we look back and we see overall wafer spending in this market. We think the market is set up in a very strong position. As I said earlier, we've had a very good run of price increases, almost unprecedented. When you go back over the last decade, it's not surprising we'd see some kind of pause like this. I think what's different this time is we're going to adjust supply much more quickly than we have in the past to respond to this and accelerate bringing the market back to a more of an equilibrium, to an undersupplied position.

Thank you so much.

Thanks, Wamsi.

Thank you. And our next question comes from Tim Archeri with UBS. Please go ahead.

Hey guys, this is Ari and on for Tim. Thanks for taking my question. It is one thing when you and Seagate had excess capacity, but it seems like you really can't ship much if any more than the 13.5 million drives you're shipping and now passing above this 10-year trend line. I would think that maybe there's more urgency from the customers on getting in orders for BTO. So any change in behavior and I will follow up after.

Yes, we haven't seen any change. Thanks for the question. We haven't seen any change in behavior. As you're aware, one of the things we've pivoted to is really moving to BTO. That's giving us a lot more visibility on a 52-week time horizon so that we can better plan with our customers and ensure we have the right supply-demand balance, and that's really ensuring that there's not a buildup of inventory within our customer environments.

My follow-up question is about the NAND side. The NAND cycle has just begun, and we've restarted our capacity. However, we are currently facing another correction in the consumer sector. If this becomes a standalone business, will you still focus on market share, or will you prioritize increasing margins like you did with HDDs, paying less attention to share? Thank you.

Yes, that's a question for our investor day on the 11th, and we're going to talk about that in quite a bit of detail. So we'll have a lot to say about that here in another week and a half. But I think the way we're managing the business now is what you're going to see more of going forward. We were very clear; we put out a pretty big webcast on the new era of NAND about how we thought about this business, how it's changed in the 3D era, how we believe it needs to be managed. I think you're seeing that play out in real time here this quarter. We'll talk about that in more detail here in a couple of weeks, and we'll hope to see you in New York.

Awesome. Thank you, guys.

Thank you. Appreciate it.

Thank you. Today's next question comes from Joe Moore at Morgan Stanley. Please go ahead.

Great, thank you. I wonder if you could give us an update on Enterprise solid-state drives. I know there's been some choppiness in that segment. Are you still tracking your targets and just how are you doing there?

Hey, Joe. Yes, we're doing well. We're still on track with our targets. As I mentioned during the quarter, we expect to experience a couple of uneven quarters, and that's what we're currently observing. Last quarter was particularly strong regarding pricing support. We remain optimistic about achieving our goal of 15% to 20% mix as we reach the halfway point of the year. We'll have a lot to discuss about our plans for Enterprise SSD at our upcoming investor day. Demand continues to be strong there, Joe.

Great, that's helpful. Thank you. And then just more of a procedural question, but is there a time where you'll give guidance for the two businesses separately? Does that happen at the analyst days, at the spin and form 10 just, or just how should I think about that?

Yes, we'll talk more about that at the investor days. I think with Wissam’s prepared remarks, he gave you enough guidance there that you can kind of get a very good idea of what the numbers are going to be. But we'll reinforce that here in another 10 days.

Okay, thank you very much.

Thanks, Joe.

Thank you. And our next question today comes from Thomas O'Malley of Barclays. Please go ahead.

Hey, thanks for taking my question. I just wanted to ask about CapEx. You're starting a new calendar year here, and I'm sure you'll give us a broader update at the analyst day. But given the reduction in utilization and just a broader pause, you're saying kind of a mid-cycle pause in the business. Any update on how you're thinking about spend on the Flash side? You've talked about technology transitions. It sounds like the SSD business is going through a couple of lumpy quarters just with all of those factors in. Any additional color on how you think about spending on the NAND side of the business, particularly? Thank you.

Yes. Hey Tom, thanks for the question. So look, there's no change in the approach on CapEx. As we've said all along, we want to stay disciplined in how we deploy the cash and capital for the company. Obviously, probably the next thing over time will be just at some point ramping the next node. But from an overall perspective, there's no real change in the thinking. I'm pretty sure as we get to investor day, David and Luis will have much more to add on that as well.

Yes, helpful. And then pivoting to the HDD side. So Seagate has given us some framework for where they think their capacity kind of hits a wall on the HDD side that's about 160 exabytes on a quarterly basis. You guys have kind of gotten, I believe in this last quarter to around 175 exabytes. Could you help us understand where you guys start running into a wall in terms of capacity? You've talked about some capacity drawdown potentially into the March quarter. But is there a similar framework that you guys go by? Just historically the market has been a little bit different than you guys being ahead in terms of the number of exabyte chips. So any kind of help with where you run into a wallet, you continue to grow there. Thank you.

Yes, I don't think we're going to make any comment on that. We are quite focused on ensuring we get the right supply-demand balance and continuing to be very prudent and disciplined in our capital expenditure.

Thank you. Next, we have Karl Ackerman from BNP Paribas. Please go ahead.

Yes, thank you gentlemen. The last quarter you launched the 32 terabyte SMR and 26 terabyte CMR with 11 disks. And I think you noted you would complete qualifications in coming quarters. I think you have that beginning to ship at two hyperscalers now and perhaps a third one is in the process of qualifying. So I was hoping you could discuss the order rates and visibility you see for these high-capacity drives as we think about the sustainability and growth of the HDD business throughout 2025. Thank you.

Hi, this is Irving. Thanks for the question. As mentioned, we see the outlook for near-line continuing to be healthy, as you've alluded to. We expect the qualification for new 32 terabyte SMR and 24 terabytes CMR to be completed sometime in calendar Q1 of the calendar year. I would say our customers are very excited about those drives and will provide you more visibility as we move forward.

Thank you.

Thanks, Karl.

Thank you. And our next question today comes from Asiya Merchant with Citigroup. Please go ahead.

Yes, thank you very much. One question we get. I understand the seasonality here in March, and I understand a couple of quarters where there is some variability. But any visibility into the inventory levels here and then just at the hyperscalers how you guys are thinking about it and then just the supply chain on the HDD side. How are you thinking about the supply chain being able to meet the rising demand that you guys are thinking about? Thank you.

Yes, thanks for the question. Look, when we talk about Q3 and what we guided is very much necessarily indicate lower visibility or higher visibility. We think we have good visibility of what the inventory is doing in our customers and where the orders look for the next few quarters. It's just a matter of timing of orders. And so this is how sort of probably the best way to think of it. There isn't very much more than that going on at least as we see from where our customers' inventories and orders look like. In terms of the supply chain. Look, we are operating in a tighter supply chain on the hard drive side. We've said that for the last couple of quarters. I think we have a great operations team that continues to be able to manage to deliver to our customers as many products as we can, and we will continue to operate as such in the next few quarters. The fact that we moved to build to orders with many of our customers gives us great visibility or greater visibility than before, and so that also helps in the ability to continue to deliver the products when required.

Thank you.

Thank you.

Thank you. And our next question comes from Vijay Rakesh with Mizuno. Please go ahead.

Yes, hi. Just to follow up on the hard disk drive side, good numbers there. But I think as you move this capacity to create two terabyte disks, I think we were going up to 11. Do you see the need to kind of push on the areal density side too as your fear is moving on the hammer side? Any thoughts there and then a follow-up.

Yes, thank you for the question. We consistently prioritize enhancing aerial density and performance. Our Ultra SMR capability provides a significant boost, which we consider a substantial competitive edge. Furthermore, this Ultra SMR capability will remain relevant as we gradually shift from our ePMR portfolio to our next portfolio.

Got it. And then on the NAND side, I know you talked about gaining more CapEx guidance at the analyst day. Any thoughts on how you see the pricing margin kind of trend for the year? I know probably haven't talked about that in the past.

Yes, we don't talk too much about that. I mean, I think what, I think I said I see going into next quarter, I see. We see some ASP headwinds but those moderating in intensity from what we saw this quarter. So that's a good sign as we sit here today. And this is why we're taking the supply actions we're taking is to support pricing, to get, we're seeing some headwinds here. We still have some, we still have a lot of confidence in demand as we move throughout the year. But we'll make some adjustments here to make sure that we bring the market back into balance and an slightly undersupplied spot as quickly as possible to support pricing and margins in the business.

Got it. Thank you.

Thank you. And our next question today comes from Ananda Baruah with Loop Capital. Please go ahead.

Yes, thanks guys for taking the question. I'll just keep it to one, but David would love to get your or any of your view on sort of Flash, the role of Flash in hyperscale storage. The area that's been sort of overwhelmingly represented by Neil and Jack. There's a pretty, it's a pretty big flash vendor, systems vendor that made a pretty public announcement in December about having a hyperscale win. And that's been a big topic of conversation over the last few months here in both businesses. So we'd just love to get your view on dynamics in that market. That's it for me, thanks.

All right. Yes, my position has been pretty stable here for quite some time. This is use case driven. There's always going to be use cases that use Flash. There's always going to be use cases that use hard drives. That mix has been relatively stable. Maybe it changes a little bit simply because Flash is growing faster, and you tend to see newer use cases come for Flash. I think AI model training is a good one. That's a very Flash-driven type use case. However, once you start generating all that data, it's going to go back onto hard drives. The hard drives have a very robust roadmap as Irving talked about. Very strong focus on aerial density. Continue to drive cost downs there. Tremendous innovations. The arbitrage on the cost there is going to stay the same for quite some time. But Flash is going to grow a little faster. Hard drives are going to grow. As they say, two things can be true. They're both true, and we feel very strong about both of them. As far as hard drives in the cloud, I'll note that we just shipped nearly 161 exabytes in a quarter into the cloud. So this is a very big at-scale business. There's always going to be use cases where again, there's always going to be use cases in the hyperscale that come up that can be satisfied with Flash. We're very big fans of that. Right. We're very bullish on Flash as well. It doesn't mean it's at the expense of hard drives. It's just that's how we see the market. We've called that way for years and we continue to see that dynamic playing out.

Thank you for all of that. Really appreciate it.

Thank you.

Thank you. And our final question today is from Mark Miller at the Benchmark Company. Please go ahead.

Thank you for the question. I just was wondering, are you seeing across the board supply reductions by your NAND competitors, and if so, any estimate on how much they're reducing?

We typically don't discuss what our competitors are doing. Our focus is on our own business. We have been transparent about our strategies, particularly in light of the recent pause in the market. We have made it clear how we will manage the business in this new phase of NAND. We have addressed the significant costs associated with nodal transitions and emphasized the importance of being disciplined with our capital expenditures and market supply, especially given the current size of the market and the productivity resulting from these transitions. That's how we are managing the business. We are still seeing strong demand this year and a balanced, undersupplied market, and we are planning some actions to ensure that remains true across our portfolio based on current observations.

Thank you.

Thank you.

Thank you. This concludes the question-and-answer session. I'd like to turn it back over to the management team for closing remarks.

Thank you everybody for joining us. We look forward to seeing all of you in New York here in a couple weeks and talking about these two businesses we feel very good about. We've executed this separation over the last year, and we're right here on the doorstep of launching these as two separate companies. And we look forward to talking to all of you about that in great detail here in just another 10, 11 days. So we look forward to seeing you then. Thanks for joining us today.

Thank you, everyone. This concludes today's conference call. We thank you all for joining. You may now disconnect your lines and have a wonderful day.