Western Digital Corporation (WDC)
F3Q10 Earnings Call
April 22, 2010 5:00 PM ET
Bob Blair – VP, IR
John Coyne – President and CEO
Timothy Leyden – EVP and CFO
Steven Fox – CLSA
Rich Kugele – Needham
Sherri Scribner – Deutsche Bank
Ben Reitzes – Barclays
Ananda Baruah – Brean Murray
Keith Bachman – Bank of Montreal
Mark Moskowitz – JPMC
Aaron Rakers – Stifel Nicolaus
Kevin Hunt – Hapoalim Securities
Jason Nolan – Robert Baird
David Bailey – Goldman Sachs
Robert Cihra – Caris & Company
Kaushik Roy – Wedbush
Nahal Troksey – Technology Insight Research
Previous Statements by WDC
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Good afternoon and thank you for standing by. Welcome to Western Digital’s Third Quarter Financial Results for Fiscal Year 2010. 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’ll turn the call over to Mr. Bob Blair. You may begin.
Thank you. I’d like to mention that we will be making forward-looking statements in our comments and in response to your questions concerning industry inventory, pricing and demand, our position in the industry, the impact of our entry into the traditional enterprise market, our investments and technology in capacity, our response to customer needs in existing and new markets, our expected capital expenditures, depreciation and amortization and tax rate for fiscal 2010, our share repurchase plans, our financial results, expectations for the June quarter including revenue, gross margin, expenses, tax rate, share count and earnings per share and the impact of the European air traffic disruptions.
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 29, 2010. We undertake no obligation to update our forward-looking statements to reflect new information or events and you should not assume later in the quarter that the comments we make today are still valid.
I also want to note that copies of today’s remarks from the call will be available on the investor section of Western Digital’s website immediately following the conclusion of this call.
I will now turn the call over John Coyne, President and Chief Executive Officer.
Thanks Bob. Good afternoon and thank you joining us today. Overall demand for hard drives in the March quarter was stronger than we anticipated at 163 million units. As we saw a sequential industry time, grow 2% in contrast to a typical seasonal decline of five to 7%. This adds support to the growing body of evidence that in the midst of significant economic uncertainty over the last 12 months, the creation, transmission, consumption and storage of digital content has become much more pervasive in our lives than anyone had previously appreciated.
Over the last year, we have seen increasing levels of demand for high capacity cost effective storage. We believe this demand is at core driven by the ubiquitous role of digital content in every day life. Spared in the consumer segment by increasingly versatile and powerful handheld devices and PCs with new and attractive price points, and in the commercial sector by a drive for growth and efficiency especially in developing markets.
Industry inventory, OEM, distribution and retail combined remains at just over two weeks of sales, reflecting continued strong demand, continuing spotty constraints in the industry supply chain and continued industry discipline in managing the supply demand dynamic. For more than eight years now WD has generated sustained profitable growth and outstanding returns for our shareholders by consistently executing to our customer centric business strategy with passion, focus and perseverance.
Customers continued to demonstrate a strong preference for WD products in the March quarter. And this enabled us to again post record unit shipments and revenue with strong profitability. We’re very pleased that in such a dynamic environment we again helped our customers to succeed in their markets by responding quickly to their changing requirements for volume and mix. A relatively moderate pricing environment combined with our cross segment agility and our focus on cost and efficiency, once again enabled gross margins above the high end of our model range.
Asset management remained crisp resulting in record cash generation. We continued to innovate and lead and multiple markets based on the significant investments we have made in people, products, processes, capacity and technology over the last few years with several recent notable product achievements.
In our client business, we began volume shipment of the industries highest aerial density, Standard 2-Disk, 2.5 inch drive, the 750 gigabyte WD Scorpio Blue Hard Drive for mainstream notebook computers. We doubled the capacity of the WD VelociRaptor, the worlds fastest SATA hard drive to 600 gigabytes delivering high performance and capacity for both enthusiast and enterprise customers.
We launched our first consumer oriented solid state drive family, the WD SiliconEdge Blue in capacities up to 256 gigabytes. In our branded products business, this week we introduced a new app for the iPhone called WD Photos, a photo viewer that gives our customers quick access to all their photos stored on their My Book World Edition or WD Share Space network drives from their iPhone or iPod Touch. Also specifically designed for Mac users, we added a new high speed My Passport
Studio Family and a one terabyte Passport SE to our range of popular hard drives.
In the CE market, we launched the WD AV-25 range of 2.5 inch SATA drives engineered specifically for demanding always on multimedia streaming applications such as DVR and surveillance. We also introduced the My Passport AV media drive family optimized for video storage and playback and designed to work directly with select Sony camcorders, Blu-ray players and other popular media players.