Western Digital (WDC) Q2 2011 Earnings Call January 18, 2011 6:00 pm ET Executives John Coyne - Chief Executive Officer, President, Executive Director and Chairman of Executive Committee Timothy Leyden - Chief Operating Officer Wolfgang Nickl - Chief Financial Officer and Senior Vice President Bob Blair - Analysts Richard Kugele - Needham & Company, LLC Aaron Rakers - Stifel, Nicolaus & Co., Inc. Jayson Noland - Robert W. Baird & Co. Incorporated Shebly Seyrafi - Capstone Investments Sherri Scribner - Deutsche Bank AG Steven Fox - Credit Agricole Securities (USA) Inc. Bill Shope - J.P. Morgan Mark Moskowitz - JP Morgan Chase & Co Presentation Operator
John CoyneThank you, Bob. Good afternoon, and thank you for joining us. With me on our Q2 call are Tim Leyden, our Chief Operating Officer; and Wolfgang Nickl, our Chief Financial Officer. Calendar 2010 was a year of tremendous opportunity for the hard drive industry with 651 million drives shipped. That's 330 million terabytes of storage capacity sold into a broadening set of applications and markets. At 16%, this was the industry's strongest full year unit growth in five years. Rotating magnetic storage remains the dominant technology solution for high-volume mass storage of digital content in both the consumer and commercial markets. Full year revenue for the industry expanded by some 13% to $34 billion. However, it was also a year of significant missed opportunity as the industry's supply-demand dynamic deteriorated as the year progressed, resulting in sharply declining ASPs, with the final quarter demonstrating a year-over-year decline in industry revenue of 7% on a unit increase of 4%, and an even sharper decline in profitability. WD again outperformed the industry in calendar 2010. We grew units 23%, revenues by 19% and operating income by 12%. The operating income number reflected the significant challenge of the industry's ASP deterioration that emerged midyear. While we improved our financial performance sequentially in the December quarter, we are far from happy that we failed to monetize our growth throughout the year and generate the kind of return needed to sustain robust investment in technologies and products to improve our customers' future experience. In the coming year, we expect the hard drive volume opportunity to approach 700 million units, representing a storage capacity of approximately 440 million terabytes. Our estimate of the investment required by the hard drive community, including our component suppliers, to support this growth is approximately $5 billion. So the need for the industry to perform well enough to sustain its critical role in the digital ecosystem should be clear to us, to our customers and to their customers. In reviewing how we can improve our future performance, we have identified a misalignment in how our industry typically begins the calendar year from a production standpoint, in contrast with the underlying demand trend of PCs, our largest served market. We are determined to start this year with the benefit of lessons learned from this analysis. And Tim and Wolfgang will elaborate on this approach later in this call.
In addressing the calendar year 2011 market opportunity, we expect to continue to grow faster than the overall market by providing greater customer value and satisfaction than competition. We will continue to leverage our cost advantage and our relentless focus on high quality, reliability and availability of product especially in the industry's fastest growing market segments. We believe we can achieve this growth plan while at the same time improving the way in which we approach the supply-demand dynamic from the outset of the year.In the medium to long term, we are focused on multiple growth opportunities in both our core business and beyond. First, as I have said, we intend to continue to grow in our existing hard drive segments by providing superior availability, quality, reliability and value, a proven approach that has established us as a leading supplier in each of our served markets today. Read the rest of this transcript for free on seekingalpha.com