Western Digital at Citi’s 2025 Global TMT Conference: AI-Driven Growth Focus

On Wednesday, 03 September 2025, Western Digital Corporation (NASDAQ:WDC) participated in Citi’s 2025 Global TMT Conference. The company outlined its strategic priorities, highlighting robust growth prospects driven by AI and cloud demand, while addressing operational challenges. CEO Irving and CFO Chris emphasized Western Digital’s focus on innovation and customer engagement following the spin-off of its flash business.

Key Takeaways

• Western Digital is focusing on AI and cloud for growth, with a shift towards a 23% exabyte CAGR.
• The company is prioritizing high-capacity, scalable, and reliable storage solutions.
• Financial strategies include dividends, share buybacks, and maintaining a strong balance sheet.
• Technology advancements include ePMR, Ultra SMR, and upcoming HAMR technology.
• Western Digital is managing costs effectively while expanding capacity.

Financial Results

• Gross margins have improved from the low 30s to low 40s, with further room for enhancement.
• Operating expenses are targeted at 14% of revenue, slightly increasing due to a fourteen-week quarter.
• Free cash flow supports shareholder returns through dividends and $150 million in share buybacks.
• The balance sheet shows gross debt of $4.7 billion and cash reserves of $2.1 billion.

Operational Updates

• Western Digital has reorganized internally to enhance customer engagement, especially with hyperscale clients.
• The company is focusing on process reengineering and AI adoption for operational excellence.
• Cultural changes are underway to drive a performance-oriented environment.

Future Outlook

• Growth is expected to trend towards a 23% exabyte CAGR, driven by AI demand.
• Long-term agreements with top hyperscale customers extend into fiscal year 2027.
• The technology roadmap includes Ultra SMR, providing a 20% capacity uplift, and HAMR technology for future scalability.

Q&A Highlights

• AI is significantly increasing demand for HDDs, especially for training and inference workloads.
• Western Digital is strategically managing capacity growth with a focus on aerial density improvements.
• The company is not materially affected by tariffs due to its classification as a semiconductor.

Readers interested in more details are encouraged to refer to the full conference call transcript below.

Full transcript - Citi’s 2025 Global TMT Conference:

Asha: Picking here because, we’re always running short on time. It’s busy. It’s day one of our Global TMT conference. Feels like the afternoon already, but, you know, really pleased here to have Irving and Chris both as well as WDC’s IR, who are here in the audience. This is expected to be an open fireside, so we’d have some questions.

But before we kick things off, I’d like to hand it over to WDC first for some prepared commentary.

Chris, CFO, Western Digital: Yes, sure.

Asha: And we can kick it off with some questions. So welcome, Erving. Welcome, Chris.

Chris, CFO, Western Digital: Thank you. Asha, for having us. And so just before we start, today we will be making some forward looking statements based on management current assumption and expectations, including with respect to our product portfolio, business plans and performance, market trends and dynamics and future financial results. These forward looking statements are subject to risks and uncertainties. And so please refer to our most recent financial report on Form 10 ks for more information on the risks and uncertainties that could cause actual results to differ materially from expectations.

We also will be making some references to non GAAP financials and a reconciliation of our GAAP to non GAAP results can be found on our website. With that, turn it back to Assia.

Asha: All right. Well, thank you for joining us again. You know, we’ll get into all the nitty gritties and financials and technology roadmaps, but just a high level question first. One for Irving, one for Chris. So Irving, you’ve been the CEO now for about nine months.

Sort of what are some of the top strategic priorities as you are, you know, maybe as you are preparing to take this job and how would you rank yourself relative to those priorities that you laid out?

Irving, CEO, Western Digital: Yeah. Thanks for the question. Maybe just quick public service announcement for those of you who may not be so familiar with us. Yeah. Western Digital with the spin of our flash business, which is now Sandus is now a pure play hard drive company, very focused around data storage, particularly in the cloud, given that 90% of our revenue in our most recent quarter was, from the cloud.

So that’s 10% that’s in the client and consumer space. But to your question, actually around strategic priorities, I would say there are really two broad categories. The first one was really around growth. Like how do we drive growth? And the second was around how do we strengthen the foundation of the business.

And in growth, there were three specific strategic initiatives that I put forward. One was getting much more engaged with our customers, given that, you know, our business today is predominantly in the data center, It’s very cloud hyper scaler centric. How do we ensure that we’re really partnering closely with our hyper scale customers to really understand the nuances of their architectures of the specific use cases and how hard drives, you know, are such a central part of both their cloud and AI business today and going forward. Right? So we reorganized internally and have dedicated teams now for each of our top hyperscale customers across sales, product management, engineering, operations, logistics to cater to their specific needs.

So on that, I would say we are well on track. Okay. Probably 8090% of the way there, and I got great feedback from one of our investors yesterday who said they did they did checks with our customers and they actually shared with us that if our customers have seen the difference

Asha: Okay.

Irving, CEO, Western Digital: And how we’re engaging with them. Second is around product leadership, and we feel very comfortable that we have market leading industry portfolio. Right now obviously with our ePMR technology powered by Ultra SMR and also with the upcoming introduction of HAMR, we have a nice way to continue to deliver TCO benefit, the capacity that our customers want in a very scalable, reliable and predictable way and derisking any technology transition for them. Third is to continue to innovate because it’s not about the drive itself. We continue to innovate around our platforms business, which we very relevant we see for neo cloud players and also some of the OEMs, as they want to take advantage of the technology and innovations that we have around our platforms business.

Asha: Mhmm.

Irving, CEO, Western Digital: So those are really the three growth pillars.

Asha: Okay.

Irving, CEO, Western Digital: And then at the foundational level, continuing the very strong focus on operational excellence we have across the company, not just within the operations teams, but making sure that every facet of the business is really focused on executing flawlessly. So a lot of process reengineering, adoption of technology AI is going in there. Financial excellence, Chris will talk more about it. We have a very clear capital return policy, that we’ve laid out. And then last but not least, a really big focus around cultural change, driving a very strong culture of performance, within the company.

And, we’ve changed incentive structures to emphasize a lot more around individual performance, driving results within the business, and really creating a degree of differentiation. And in order to achieve that cultural, change as well, There’s been a lot of work where starting with the leadership team, like one third of us were existing part of the existing leadership team from Western Digital before the spin. One third, I promoted from within the company to take on new leadership roles. And one third, we’ve brought in new people like folks like Chris, seasoned finance professionals. Our new chief product officer, came from Microsoft where he he led a big chunk of, Azure storage and was the AWS before that.

Really has a deep customer understanding of how our products being used, and same thing on on the HR side. So a really nice combination starting at a leadership team, but we are percolating that further down the organization.

Asha: Okay. The same for you, Chris. What brought you to WD?

Chris, CFO, Western Digital: Yeah. I I just crossed over a hundred days at Western Digital now, and so really blessed and happy to be part of the team. Before I joined Western Digital, did my diligence. And for me, what was really standing out was, as Irving already said, but maybe I’ll summarize it in my own words, global technology leader with a very strong product roadmap. Secondly, deep customer engagements with the most innovative, successful, largest companies on the planet.

And to earn a seat at their table, you have to be able to create a lot of value. And then third, a strong global manufacturing footprint being able to produce millions of units each and every quarter at the highest quality, highest reliability and delivery of our products to our customers. And when you put this all together in combination with a strong management team, you create a very strong financial business model with very strong financial output in terms of revenue and revenue growth, gross margins and operating margin expansion and then also free cash flow. Free cash flow that can be used to continue to invest in the business as well as shareholder friendly capital return policy. And I’m sure we’ll talk more about each of those topics

Asha: Yes, good

Irving, CEO, Western Digital: to you. In the next

Asha: thirty Third quarter was very strong for you guys. I think you had revenues up 30%, much more on the bottom line. So as you sit here in calendar third quarter, Irving, like there was lots of like puts and takes at the start of the year. There were tariffs, there was demand or thoughts of demand evaporation. So as you sit here in calendar 3Q, how is as you think back, how has demand evolved for these markets that you’re in particularly for cloud which is now like 90%?

Irving, CEO, Western Digital: Yeah. Well, first of all, you know, we we only guide one quarter at a time. Mhmm. But having said that, I can give you a bit of color what we’re seeing. So, know, we laid out initially at our Investor Day, a growth financial model where we saw baseline growth at 15% exabyte CAGR over a four year period.

That was the baseline growth was predominantly predominantly our analysis based on what cloud growth would be going forward. And we also laid out AI uplift case, which was 23% exabyte growth. And what we are seeing right now is actually growth is trending more towards that 23% exabyte growth CAGR, really AI really kicking in a lot more. And so the conversations with our customers have evolved quite rapidly over the last year. Right?

If you go back a year, we had POs or long term agreements with them that probably were six to nine months. Most recently at our last earnings call, we shared that we now have firm POs with all of our top four and LTAs with one of our top five that span throughout our entire fiscal ’27. And with two of them even into the first half of fiscal year fiscal year twenty six, sorry. Yeah. And with two of them even into fiscal year twenty seven.

We’re now in conversations with them to see how we can enter into even longer arrangements because they’ve clearly seen that hard drives are central to continue to power the growth that they are seeing within AI. Right? And just as they’ve been focusing on GPUs and then HBMs, most recently they’re seeing that actually HDDs are going to be a critical part of the growth enabler, of AI going forward. So very different set of conversations that are happening with the customers and we see that this is probably the early innings of a multi quarter growth cycle.

Asha: Okay. And then just on the flip side, I mean, we’re talking about strong growth, but what are some of the you know, if you think about it, obviously, you’re also into risk mitigation, like what could be the flip side of that strong growth that you’re seeing, the puts and takes to that end demand outlook?

Irving, CEO, Western Digital: Yeah. I mean, there’s always the the concern that we experienced probably two years ago. Right? So it’s something we have scar tissue, having run operations for that time, I definitely have scar tissue, on it. And so we’re we’re very prudent around that.

Right? So but our focus is really how do we support that capacity growth that our customers want through ongoing improvements in aerial density.

Asha: Mhmm.

Irving, CEO, Western Digital: And what I mean by that in simple terms is how do we deliver higher and higher capacity drives to them in a very scalable and reliable manner. Because it’s not just about the highest capacity drive we can deliver, it’s about being able to produce at scale, right, and being able to deliver reliable quality products that they don’t have any concerns around what’s going to happen one year down the road, two years down the road, with those products. So we are continuing to invest into our hidden media, facilities. Those are the big drivers of aerial density. In terms of investments into our back end, which is the unit volume improvements, we continue to be very prudent around that area.

If we are able to secure these longer term commitments with our customers, have commercial arrangements, some downside protection, we’re open to exploring, some moderate increases in that area.

Asha: Okay. And then tariffs, we still don’t have a decision, I guess on Section two thirty two. It was expected in the summer. So I did have a question around that. But just any thoughts on if these were to come down, where the focus would be you have to manufacture in The U.

S. To, I guess, not be as impacted by tariffs? Just some high level thoughts on how you guys are thinking about Sure. The

Irving, CEO, Western Digital: Well, right now, as you’ve mentioned, we are not impacted, by tariffs because we are classified semiconductor. As we all know, it’s a very fluid environment, so we’ll see what pans out. I would say that we actually do manufacture in The U. S. Today.

We have two fabs in The U. S. Both located in California that’s where all our head wafers are produced. As I just previously mentioned, we are continuing to make investments into adding capacity in our head wafer capability. And so that investment will come back into The U.

S. As well. In terms of tariffs, our supply chain teams continue to do a lot of work in terms of how we can mitigate some of this impact.

Asha: But as

Irving, CEO, Western Digital: things stand and with some of the commercial arrangements we have with our customers, we don’t anticipate any material impact to our financials with tariffs.

Asha: Okay. And then just you talk a lot about demand visibility, which is fantastic. Just help investors, there’s always a lot of nervousness around those agreements, like what gives you the confidence that these agreements will come to fruition and it’s not just them putting these numbers out there and just it’s actually real demand that will actually come to fruition? Yeah. I

Irving, CEO, Western Digital: mean, it’s a really fair question and so, know, we obviously get multiple input sources in order to make those supply capacity decisions, not just the demand signal that we get from our customers as we’ve seen in the past, right? But we do do use our own modeling. We have our own, machine learning algorithms that we use to ascertain what the demand signal should be. And so based on the triangulation of different data points, that’s the investment decisions that we made, just not purely the demand signal that’s coming from our customers. As I mentioned, for longer term agreements, we are in discussions to have some financial teeth to them, give us confidence to make those investments.

But I want to you know, would say that upfront, Chris and I always talk about it, we are not believers of take or pay Right. Because all we’re doing is creating a problem down the road. We we we work very closely with our customers to understand, whether there are any changes in their demand signal. Mhmm. And you you must remember like with 90% of the business with cloud and the size of these new data centers

Asha: Yes.

Irving, CEO, Western Digital: That are being built. Right? We will see potentially quarter to quarter variability. Sometimes this is a delay, whether it’s in construction or some components that they have or sometimes they need stuff earlier because they’re trying to ramp up a data center faster. So I think the dynamic for customers has changed quite significantly.

One of them actually said, you are strategic to us right now. And so that early visibility, that sense of partnership and close engagement has fundamentally changed, over the last year, I would say.

Asha: Okay. And then when you think about the AI, like you talked about the kicker relative to the base cloud growth, like help investors understand, you know, what are those workloads that are driving the increased demand and the strategic use of HDDs here? Yeah. Over and above the cloud growth that

Irving, CEO, Western Digital: Sure. Know, I I would say that if you look at AI, let’s take training for example, and it extends into inference. Right? If you look at the compute resources, you look at GPUs, you look at HPMs to some degree DRAM, those components are you could say they are recyclable. So as they they train a model, when they’re done, when they train the next model, they recycle those components within the data center.

But what we’re seeing and hearing from our customers is hard drives and storage is not being recycled. So what happens is when they train a model, they store not only the model, but all the associated data that was used to train them all as well. And then as they move to the next iteration of that model, after they finish training that model, again they store the model and the associated data that comes with it. So in a way, there’s a disconnect between what’s happening on the compute side in AI and what’s happening in storage going forward. And it’s also very important to understand that for hyperscale customers, they are one of the things that they do really well is to take advantage of the economics of storage tiering, right, what’s the difference between tape, HDDs and flash, and be able to use their software capabilities and the economics that is made available by those three tiers, to really deliver the service that they can and be able to monetize it with the maximum return.

And so what we’re seeing is that 80% of data in the hyperscale data center is being stopped on hard drives and they’re to train models. What they’re doing is actually they are buffering all that data that they need from hard drives into the flash layer, so we can deliver that data at the velocity that it needs to train the model. So they’ve really done a great job of figuring how how to basically manage the economics of the different tiers, at the same time delivering the performance of data that they need to feed the GPUs.

Asha: Mhmm. Which is a good point because when I was at the Future Memory Summit in August, so I did see a lot of that, you know, cost efficient, maybe high capacity SSD storage, exactly like you talked about, this tiered storage model. Just and I think Meta was one of them who started experimenting with this and I’m sure there’s other hyperscalers there as well. But when you think about the HDDs being sort of tight, as you talked about it, like you don’t have excess capacity, you’re trying to just make mostly do this with density roadmaps. Like how are you thinking about the impact to HDD EB demand, given these SSDs are starting to make some inroads into the data lakes into these high storage

Irving, CEO, Western Digital: I think if you look at the Meta case, you know, it’s been going around a fair bit. It’s it’s really a very specific use case in research. Okay. Right? And if you look at QLC drives, in particular, they are very good at throughput, but they have some limitations in the sense that they degrade very quickly after a certain number of writes.

So they’re very good at applications that require a lot of read because of the capacity and the throughput that it has, but when you have to start to write to it, it starts to degrade very quickly after a thousand writes. So there there’s definitely a niche in terms of applications for, flash. But if you look at the broad scale utilization of data and how it’s being continuously moved within a hyperscale data center environment, as I just mentioned, data is not static within a hyperscale data center environment. It’s constantly moving from tape to HDDs and flash. So that means a lot of read and write.

So we still feel very comfortable that, due to the QLC limitations and the number of REITs, it’s not going to be a mainstream viable solution. Secondly, we’re also working very aggressively to make sure that we maintain a total cost of ownership differentiation. As we laid out in our Investor Day, from a dollar per terabyte standpoint, so that’s the acquisition cost. We’re very focused on maintaining a six x delta. And our Investor Day, we laid out till fiscal year two thousand thirty, a roadmap that we feel very comfortable we’re able to maintain the six x delta.

The 6x delta on acquisition cost translates into a 3.6x delta on total cost of ownership. Right. So Flash does have some advantage on energy consumption, space because of density. Density. But But at at 3.6 x delta, we work very closely with one of our large hyperscale customers to come up with that analysis.

If you have a chance to look at the webcast of it, you should look at it. And we have one of the chief architects from that customer as well, whose job is to really look at storage technology into the future, give a very strong testimony to say that as far as you can see, there’s nothing out there that’s going to replace HDD as the mainstream storage media in the data center.

Asha: Okay. We’ll switch to margins in a little bit to talk to Chris, but just, you know, cloud, it’s obviously the big hyperscalers, but you also do sell to enterprise OEMs that also have data centers and whether they offer it in a cloud way to their end customers or they sell it on prem. Just help us understand what are you seeing on demand from these enterprise OEMs?

Irving, CEO, Western Digital: Yes. We are obviously seeing the bulk the growth coming from the hyperscalers. I think on prem IT, which OEMs predominately with private clouds, for example, has been the growth has been slightly lower than that from what we’ve seen with the hyperscalers. I think part of it is just more cautiousness around the macroeconomic environment. So on prem IT spend has been a bit more muted.

Having said that, we are working closely with these customers not only in terms of providing them our drives, but a few of them have also engaged with us on our platforms. Basically, our J Bot, so it’s a nice acronym called just a bunch of this. Yes. Just a bunch of drives. So it’s basically an enclosure where you can have 60 hard drives into it or 120 drives into it.

We now have platforms that also can convert the data output into Ethernet as well, which is something that they appreciate. And that’s giving them the opportunity to redeploy their resources away from having to build these platforms into other areas that can give them better returns. So we’re seeing that very clearly, getting a lot of traction with OEM customers. We’re having the same discussions with Neo Cloud players as well, because many of them don’t have big infrastructure teams, like some of the more established hyperscalers do. And we actually have one very large, cloud customer that’s already using our platforms to power a very popular social media application.

Asha: Okay. Chris, over to you because I’m sure Irving is always asking for more dollars. But just help us understand. I mean, have this tight balance to run between adding on incremental capacity to perhaps meet the needs of these hyperscalers, which are growing. At the same time, you want to be careful about that situation?

Like how are you kind of thinking about that tight balance that you have to run?

Chris, CFO, Western Digital: Yeah. No, that’s indeed a very tight balance. But we can continue to increase the capacity and exabyte by aerial density. That’s the most important thing. And there’s two ways of doing that.

First of all, it’s by increasing the top end of our capacity per drive as we continue to invest in our EPMR roadmap. We just brought out six months ago what we call the latest ePMR technology. We are still working on one more generation, which is probably going to be the last generation that will come out in a couple quarters from here, while we of course, working on HAMR as well. So driving aerial density will enable us to create a lot more exabytes and translate into more revenue. Now in addition to that, we are making some investments in heads and media as well to expand the capacity there.

We’re working really hard on yield and OE improvements through automation in our factories, and that creates a little bit more capacity. We’re working with our suppliers supply chain to get some more supply as well. And when you combine all of that, we feel in a good position to support the exabyte growth that we see from our customers.

Asha: Okay. And is there any I do get this question from investors. Is there any mothballed capacity that you could turn on like things that were turned off during the downturn that could possibly be brought back on? And if that were to be the case, how long does it take to turn on that capacity?

Chris, CFO, Western Digital: Yes. So some of that is available to us and we’re working on that. Now you have to take into account that, yes, it might take a couple of quarters to bring that online similar with some of the CapEx that we do. And then it takes twelve months to produce an hard disk drive, because nine months of that goes into the heads, the wafer that eventually gets into the heads. But the total manufacturing lead time is twelve months.

Asha: And I think people underestimate the amount of time that it takes on that front. So I do get people were surprised by it. A little bit maybe shifting back to the technology roadmaps you talked about, you did bring about the Leven Disk solution. There’s another one more generation of ePMR and you obviously have the ultra SMR on top of that as well. So how do you think about your position with your key customers?

I mean, they looking at HAMR, which is going to be next and shifting their priorities here? Just help us understand how the cloud customers make decisions.

Irving, CEO, Western Digital: We we haven’t seen that. In fact, I was just up in the Pacific Northwest with our customers just two weeks ago and you know it’s very clear our customers don’t really bother whether it’s EPMR or HAMMER. Sure. So what they really want is, can you give me the highest capacity drive in a scalable way? What does scalable mean?

At least a million units a quarter, and is it reliable? That’s ultimately what they want, right? And that’s really our focus. So as Chris mentioned, you know, we feel very comfortable that we have the leading technology with our ultra SMR products. We currently are shipping up to 32 terabytes in that platform.

We have one more, iteration of that coming out, in about early part of calendar year 2026. In the roadmap we laid out, it’s going to be up to 36 terabytes. We have great engineers, they always do amazing things. Maybe we can stretch capacity points, even more, so we’ll see, about that. But customers really, are taking to that because if you look at that current 32 terabyte drive that we’re shipping, we took only two quarters to qualify that drive.

Asha: Okay.

Irving, CEO, Western Digital: Right? The first quarter after qualification, we shipped 800,000 units. The second quarter after qualification, which was just our most recent quarter, we shipped 1,700,000 units. Mhmm. This quarter, we’re likely to ship over 2,000,000.

So that is the realized scalability that our customers really want. To them, it’s no point saying we have a 40 I could ship them a 44 terabyte drive today. Could I do it at that scale that we’re doing? It’s not really, it’s not reliable. You’re not going to have to yield.

It doesn’t make economic sense for them and for us to do it. So that’s what we’re really focusing on. In parallel, we’re also working on HAMR. Yeah. I would say I’m actually very pleased with where we are with the milestones that we’ve set from HAMMER.

We have really great line of sight from the aerial density improvements that we’re making on HAMMER to hit that introductory 44 terabyte, capacity point that we laid out in our roadmap. Our focus right now is ensuring that when we do bring HAMR out into the mainstream, it’s reliable. It’s got the same reliability as our EPMR portfolio has today. And at the same time, we are focusing on manufacturing yields. As Chris mentioned, yields have been a big part of how we’re able to deliver more capacity to our customers without having to put in incremental CapEx investments.

And over the last three years, I would say, you know, our yields have gone from mid-60s to 70% to high-80s. Great job by the engineering and manufacturing teams to really collaborate, so that when we transition products and R and D into production, new levels have gone up very quickly as well. So that’s the same thing we’re looking to do for HAMR, so that when we do make that transition, we are giving our customers a very risk free transition. Almost like our approach is and which is resonating with them. If you need, let’s say, 200 exabytes of data in a year, we’ll ship you 200 exabytes and maybe a combination of EPMR and HAMR, but we’re just going to derisk it for you, right?

And that’s really resonating with them.

Asha: Okay. And how does that algorithm that you talked about factor into margins, incremental margins specifically as you continue this transition towards higher density, whether it’s ePMR and eventually to HAMR, like help us understand how the incremental margins could look like?

Chris, CFO, Western Digital: Yeah. So when you think about gross margins, first of all, I’m very pleased with the progression that we’ve made, right. A couple years ago, we were in the low 30s, moving to the mid 30s, moving to the high 30s. And now we have two quarters where we’re in the 40s. I think there is still a gross margin progression in front of us.

When you think about margins, right, it’s pricing, it’s cost and it’s mix. And those things tend to evolve over time. Although when you look at the pricing side, I call it we’re in stable pricing environment, Pricing on a price per terabyte is kind of flattish in this environment on a sequential on a year over year basis. Secondly, I think we’re doing a really good job at driving down the cost per terabyte, in part again by moving to higher capacity drives and leveraging the aerial density roadmap that we have. By the way, that creates a lot of value for our customers as well, right?

So we really create value through innovation that value can be shared. Some of that, of course, is retained at Western Digital. Some of that continues to lower the total cost of ownership at our customers and continue to maintain or expand the leadership we have versus competing technologies, right. And then of course, have some quarters you have mix shifts as well. But again, very pleased with where the gross margins are in the low 40s and still further room for improvement as we continue to execute on our technology and product roadmaps.

Asha: Okay.

Irving, CEO, Western Digital: Maybe I just want to chime in on one thing Chris mentioned. We deliver a technology called Ultra SMR. It’s a bit different from the rest of the industry, right. And so our Ultra SMR gives us a 20% capacity uplift over a standard CMR drive and a 10% capacity uplift over a standard SMR drive. And that uplift is predominantly driven through software and some of the designs that we have in our technology.

So you don’t get the associated costs with that capacity uplift. So that’s also a big part of both the ability to deliver higher capacity points without the associated costs that’s coming from it. And that’s extensible when we move to when we do transition to HAMMER, that ultra SMR will also be applicable to HAMMER.

Asha: Right. And on the ultra SMR, I’ve asked, you know, some investors who are maybe newer to the WDC story have asked about, is there anything that’s needed on the your customers’ point, at your customers’ end to enable the use of ultra SMR?

Irving, CEO, Western Digital: Yeah. There is some work that they need to do on the whole side. Yeah. Some software adjustments that they need to do. But we now have three large customers, three hyperscale customers that have already qualified and adopted.

Two of them have been on Ultramy’s SMR for quite a while. The third one has just qualified it and is now adopting it as well because that’s a great way for them to get more bits, support the growth that they need. And by the end of the calendar year, 50% of the nearline bits that we’re shipping will be ultra SMR. On top of that, for those customers who maybe don’t have the sophistication or the capability to make those software adjustments, We’re also looking to use our platforms to basically remove the need for them to do work on the whole side by taking that load off in our platforms to enable a broader adoption of.

Asha: Adoption. Okay, great. And then you’re also getting more efficient on OpEx. Maybe you can just touch a little bit on OpEx as well, Chris?

Chris, CFO, Western Digital: Yeah. So at the Investor Day in February, we lined out a model that had on or about 14% of OpEx to revenue. Last couple of quarters, we have been running below the 14% to revenue. Keep in mind, this quarter we have a fourteen week quarter. So there is approximately $15,000,000 extra OpEx that will come out next quarter.

But yes, we’re doing a good job at running our OpEx. Despite the fact that there is no hesitation, we will continue to invest in our technology and product roadmap, right? We are an innovation company. That’s how we again create value for our customers. But as revenue continue to grow, there is further leverage in the model.

And you can see OpEx as a percent to revenue to continue to trend down from where the current levels are.

Asha: Okay. I’m going open it up to the audience. I have a few more questions, but if there is any burning questions in the audience, please raise your hand, so we can bring the mic to you. Anyone? No?

Going once, twice? All right. Along with great margins and great earnings comes great cash flow, great free cash flow. So I can see Chris’ eyes getting all super excited. Tell us about, you started a buyback, debt paydown, I think meaningful buybacks expected, like just help us understand like how does that free cash flow then flow in to how we should be thinking about the buyback strategy here?

Chris, CFO, Western Digital: Yeah, no, you’re absolutely right. Again, strong revenue growth translating into gross and operating margin expansion, but also strong free cash flow as we discussed. That’s one side. Despite the fact that we continue to invest in the business, we’re not starving the business. Secondly, we have a healthy balance sheet.

Post separation or at the separation, there was a lot of debt reduction. And then post separation, we further reduced the debt. We’re now at $4,700,000,000 gross debt, dollars 2,100,000,000.0 cash flow, dollars 2,600,000,000.0 of net debt, which is on or about one times EBITDA leverage, right? And our target range was one to 1.5. So we’re at the low end of that range.

Also keep in mind, we still have 7,500,000 of Sandisk shares that at a certain point will get monetized as well. So healthy balance sheet, strong free cash flow. So what do we do with that? Well, again, we’ll continue to invest in the business for sure, but also return all the excess excess cash back to the shareholder through a combination of our dividend program that was initiated at $0.10 per share. And so there is plenty of room to grow that and we are committed to that.

But also through our share buyback program that was initiated 2025. In the first quarter, we repurchased $150,000,000 just in a month and a half. And so we will continue to use that program and step up from what we did prior quarter as well.

Asha: Okay. And then just there were some discussions last earnings about the dilution from on the share. Just help us maybe level set for investors how we should think about the dilution on the share level and how is that offset with buybacks?

Chris, CFO, Western Digital: Yes. So we do have a convertible notes, right? And that’s way in the money above our capped call.

Asha: Well, way in So

Chris, CFO, Western Digital: as share price eventually continues to go up, there will be some accretion. But high level, I think you have to think about the share count trending sideways. So where we offset the dilution from the convert, we do have a little bit of share count creep because of SBC, although that’s minimal. But then we will be able to offset that with our share buyback program. And so until the convert will be retired, the share count will trend sideways.

Asha: Sideways. Okay, that’s great. Almost at one time, but if I can quickly ask you investors are not yet fully appreciating about WD shares?

Irving, CEO, Western Digital: Yeah, I think one, just the way we’re really focused on our customers and engaging with them very differently, you know, across multiple functions across our company and their companies. The technology roadmap that we have, I think there’s a lot of focus on a particular technology in the highest capacity point. There’s not enough understanding of how do we address customer risk management concerns, how do we deliver, how are delivering highest capacity at scale in a very reliable way that our customers are really recognizing and that shows up in amount of bits we’re shipping, so it shows up also in the share we have in our customers. So I think those are the main things. And as Chris mentioned, that’s ultimately translating into a very strong set of financials that are we are able to reward our investors much better.

Asha: Great. Any parting words from you, Chris? We’re just happy to be here.

Irving, CEO, Western Digital: I mean to have him. Yes.

Asha: Alright. Well, that about wraps it up. Thank you, to West Indig here, and good luck with the rest of your meetings.

Irving, CEO, Western Digital: Thanks, Ashu.

Asha: Thank

Irving, CEO, Western Digital: you. Thank you.

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