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TheStreet Open House

Western Digital Corp.'s (WDC) CEO Stephen D. Milligan on Q3 2014 Earnings - Call Transcript

Western Digital Corp. (WDC) Q3 2014 Earnings Call Corrected Transcript: 30-Apr-2014


PARTICIPANTS

Corporate Participants

Robert Blair - Head-Investor Relations, Western Digital Corp.

Stephen D. Milligan - President, Chief Executive Officer & Director, Western Digital Corp.

Timothy M. Leyden - Chief Financial Officer, Western Digital Corp.

Other Participants

Aaron C. Rakers - Analyst, Stifel, Nicolaus & Co., Inc.

Richard J. Kugele - Analyst, Needham & Company, LLC

Andrew J. Nowinski - Analyst, Piper Jaffray & Co (Broker)

Rob G. Cihra - Analyst, Evercore Partners (Securities)

William C. Shope, Jr. - Analyst, Goldman Sachs & Co.

Monika Garg - Analyst, Pacific Crest Securities LLC

Kathryn Huberty - Analyst, Morgan Stanley & Co. LLC

Ananda P. Baruah - Analyst, Brean Capital LLC

Steven B. Fox - Analyst, Cross Research LLC

Keith F. Bachman - Analyst, BMO Capital Markets (United States)

Amit Daryanani - Analyst, RBC Capital Markets LLC

Sherri A. Scribner - Analyst, Deutsche Bank Securities, Inc.

Scott D. Craig - Analyst, BofA Merrill Lynch

Jayson Noland - Analyst, Robert W. Baird & Co. Equity Capital Markets

Nehal Chokshi - Analyst, Technology Insights Research LLC

Joe H. Wittine - Analyst, Longbow Research LLC

MANAGEMENT DISCUSSION SECTION

Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Third Quarter Financial Results for Fiscal Year 2014. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this call is being recorded.

Now, I will turn the call over to Mr. Bob Blair. You may begin.

Robert Blair, Head-Investor Relations

Thank you. We will be making forward-looking statements in our comments and in response to your questions concerning, among others: our position in the growth of data and the storage ecosystem; stabilization of demand in our business; demand trends in the enterprise space; our product offerings; and our customers' responses to our product offerings; and our financial performance, including our financial results expectations for the June quarter.

These forward-looking statements are based on management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including those listed in our 10-Q filed with the SEC on January 31, 2014. We undertake no obligation to update our forward-looking statements to reflect new information or events.

In addition, references will be made during the call to non-GAAP financial measures. Reconciliations of the differences between the historical non-GAAP measures we provide during this call to comparable GAAP financial measures are included in the quarterly fact sheet posted in the Investor Relations section of our website.

The forward-looking guidance we provide during this call excludes amortization of intangibles related to the acquisitions of HGST, VeloBit, sTec and Virident, asset impairment and other charges, charges related to litigation, and expense due to the write-off of debt issuance costs. Because the amount of these items is not fully known to us at this time, we are unable to provide guidance for, or a reconciliation to, the most directly comparable GAAP financial measures. The impact of these excluded items may cause the estimated non-GAAP financial measures to differ materially from the comparable GAAP financial measures.

We ask that participants limit their comments to a single question and one follow-up question in our Q&A session. I also want to note that copies of remarks from today's call will be available on the Investor section of Western Digital's website immediately following the conclusion of this call.

I'd now like to turn the call over to President and Chief Executive Officer of Western Digital, Steve Milligan.

Stephen D. Milligan, President, Chief Executive Officer & Director

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

We achieved solid financial results for the March quarter with revenue in line with our expectations and gross margin and earnings per share exceeding our guidance. Cash generation remained strong. Our steady financial performance continues to demonstrate an ability to manage the business and deliver ongoing value to our customers and shareholders.

Both of our subsidiaries executed well in the March quarter as we continue to participate in the ongoing growth of data, with an intense focus on helping our customers succeed in a rapidly changing environment.

Our results reflect sustained strength in gaming, anticipated seasonality in client and branded products, and some softness in the enterprise space. The industry TAM was slightly higher than anticipated driven by the strength in gaming.

We continue to see demand stabilizing in the commercial side of our client business as a part of a PC refresh cycle and we remain positive about the long-term demand trends in the enterprise space. The continued strength in gaming is due to consumers' healthy demand for the newest game console designs, all of which have integrated hard drives. Overall, we believe industry supply and demand remain in balance.

We continue to be very excited about our unique position in the overall storage ecosystem, enabling a broad-based perspective on the dramatic changes that are underway. Customers are responding positively to a number of new products and technologies we are bringing to market to help them to be successful.

Specifically; our enterprise-class SSD business had another strong quarter. We will continue to expand our full range of enterprise SSD products, including SAS, PCIe, and SATA in a range of form factors and capacity points as well as grow our software and solution offerings.

Several strategic OEM customers have qualified our 6 terabyte helium filled drive and we are shipping to them in volume. The product is generally available on a global basis resulting in broad adoption in all geographies. It is important to note that our innovative helium technology platform is extendable to higher capacities and additional applications.

We recently began shipping a new family of high-performance, high capacity, 2.5-inch 15K hard drives. Our customers continue to use 15K hard drives with SSDs in tiered pools of storage, and this new product addresses the industry's shift away from the 3.5-inch form factor to smaller 2.5-inch drives to help manage space requirements.

Customers have responded very positively to our Power of Choice lineup of hard drives, including the WD Red drives that ship primarily to value-added resellers who are configuring NAS systems for small and medium businesses.

Likewise, the new WD Purple series addresses security surveillance NAS systems for the home and small businesses. Both of these are high growth segments, where storage is a value-added means to an end for the customer, which makes them attractive opportunities for us.

We continue to see opportunities with our My Cloud network attached storage solutions in the home and small office segment. Our My Cloud solution provides the opportunity to connect with billions of devices that create, store and display massive amounts of data.

All of these products reflect our highly focused strategy of helping our customers succeed through collaboration and innovation and are contributing to the favorable mix shift underway in our business to higher growth and higher value-added segments of the market.

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