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With these adjustments to our supply, we expect our bit growth in calendar year 2019 to be in line with our view of end market demand growth of between 36% to 38%. We will continue to monitor market conditions and make additional adjustments either up or down as the situation dictates. As we enter the second fiscal qua...
We are in the midst of adjusting to a more normal growth rate. For the calendar year 2018, we now project capacity enterprise exabyte growth of approximately 55%. Based on discussions with our customers, we expect stronger growth to resume in the second half of calendar year 2019. Steve has already talked about how the...
As a management team, we are well aware of the current macroeconomic and industry conditions and are taking appropriate actions to respond while ensuring we invest for future growth and leadership across the markets we serve. Examples of our progress in the first quarter were: we maintained our leading position across ...
Data Center Devices and Solutions revenue grew year-over-year driven primarily by continued demand for our capacity enterprise hard drives. In addition, we experienced record revenue in our emerging data center systems products, a strategic growth area we will discuss in more detail at our upcoming Investor Day in Dece...
Thank you, Mike, and good afternoon, everyone. As Peter mentioned earlier, we've updated our disclosures to provide investors with additional transparency into our business. In particular, we are providing a breakdown of our total revenue and non-GAAP gross margins for flash products and hard drives. These disclosures ...
I will now review the financial performance for the September quarter. Revenue for the September quarter was $5 billion, a decrease of 3% on a year-over-year basis and below our original outlook for the quarter. The shortfall was primarily driven by weaker-than-expected flash pricing. Specifically, our flash-based prod...
The September quarter revenue for Data Center Devices and Solutions was $1.4 billion, an increase of 6% year-over-year. Our Data Center revenue growth continues to be driven by cloud-related storage. Client Devices revenue was $2.7 billion, which was essentially flat year-over-year. We had significant growth in embedde...
Non-GAAP gross margin for the September quarter was 38%, down 430 basis points year-over-year. Gross margin declined primarily due to a reduction in flash ASPs. Non-GAAP OpEx for the September quarter totaled $820 million, consistent with the prior quarter. Given the current environment, we continue to align our spendi...
In the September quarter, we generated $705 million of operating cash flow. We continued to reinvest in our business with $248 million in capital investments resulting in free cash flow of $457 million. In the September quarter, we had a sequential increase in inventory primarily driven by a return to normal operating ...
These share repurchases put us on target of our goal to repurchase $1.5 billion of our common stock during fiscal year 2019 depending on market conditions. We continue to believe this is an attractive capital allocation opportunity and demonstrates the confidence we have in our long-term outlook. We also declared a div...
We expect to reduce our planned flash output by approximately 10% to 15% for calendar year 2019. The goal of these actions is to bring our supply more in line with the demand environment with the majority of the supply reduction occurring by the middle of calendar year 2019. Based on our current plan to temporarily red...
As Mike indicated, we may adjust our plans based on market conditions, and this could impact the extent of any charges. I will now provide our guidance for the second fiscal quarter of 2019 on a non-GAAP basis. We expect revenue in the range of $4.2 billion to $4.4 billion; gross margin in the range of 32% to 33%; oper...
I will now turn the call over to the operator to begin the Q&A session. Operator?
(Operator Instructions) Aaron Rakers, Wells Fargo.
Yeah, thanks for taking the question, and I appreciate the additional disclosures given tonight. I just want to try and dissect a little bit the guidance that you just laid out. Help us understand the variables to consider between the hard disk drive revenue assumptions and that of the flash assumptions. And then also,...
For one I let Mike talk about the product side and the cost side first and then I'll finish with the modeling question.
Yeah. So, on the cost-down, just as we think about costs, we've talked about the long-term range of between 15% and 25%. We've been operating and expect to be operating near the low end of that. We continue to see that as our expectation, and obviously, we'll update this further with more perspective at the Analyst Day...
Yeah, so from a modeling standpoint, when you think about the HDD side, the capacity enterprise and client compute contribute to the decrease in revenue. And then on the flash side, we have the pricing environment reducing revenue as well as mobility declines. The margin changes are largely a function of the flash pric...
Wamsi Mohan, Bank of America.
Steve, appreciate the incremental disclosure on the flash side. That's very helpful. Clearly, you're taking some actions here to curtail flash output to be in line with demand. But can you give us some sense of how long do you think that it might take to get the supply demand back into balance? Sounds like mid next yea...
Yeah, so let me add color on that. Our -- the efforts that we're taking are intended to get our supply demand equation in balance by the middle of calendar 2019. We don't know what the rest of the industry is going to do. And so your comment in terms of why we think that the industry's going to follow, that's not a cor...
Yeah, and just to add a little color on that, our costs bring us in line with what we expect the end market demand to be. So straight calculation there is it's obviously intending to maintain share.
Yeah. And the other thing I would add is there is no intent or implied shift bit share loss in our numbers. In other words, as I indicated in my prepared remarks, we still intend to have enough bits or supply to demand our customer commitments. This is really a matter of supply has been outstripping demand for a variet...
If I could really quickly, when you think about the gross margin trajectory here, obviously, the flash margins have been compressing here a few quarters and going to continue. But as you think about these capacity reductions coming ahead, should we expect gross margins to compress beyond the December quarter here like ...
Well, it's a great question. And the reality is is that, I'll be sort of literal, we don't know for sure. We're going to have to wait and see, but we would expect that we would continue to face a challenging flash market through the first half of calendar 2019. And so that implies that there could be further margin com...
I guess, in light of the wafer start change and delaying CapEx, would love to hear your thoughts on how you think about scale and other factors to enable best-of-breed cost-down in this highly competitive market. So, are there other avenues to lift that sort of low end of the range of 15% that you're focused on perhaps...
Relative to the cost declines, you're on the point. So it's tech transitions, so rate in which we convert to the next node and the implementation of QLC over the longer horizon. That's a bigger lever. The thing we are highlighting in our projections as of now is just the realities of the 3D era, right. They're more cap...
Yeah. And we continue to because of the joint venture structure and that we continued to expect to benefit from scale despite the reduction in wafer starts because it's only our capacity that we're reducing those wafer starts. But if you look at the total output of the joint venture, we continue to have the broader ben...
Amit Daryanani, RBC Capital Markets.
Hi. This is Amitesh Bajad for Amit Daryanani. Thanks for taking our question. Just on the NAND ASP decline, do you at this point see any risk of you having to cut pricing on the HDD side as well? Or actually, at what point do you think that NAND ASP declines could pressure you to cut HDD pricing to slow down the substi...
Yeah. I think in the case of relative pricing, that's not the direct impact. It really is the rate of cannibalization. And we have seen that accelerate. We would expect we exit the year about 60% in terms of SSD versus HDD in the PC space.
Yeah. And just to comment on that because the -- as painful as it is, the announced closure of our Kuala Lumpur manufacturing facility anticipated continued decline, particularly in terms of client hard drives. And so, that expected uptick in terms of substitution of SSDs for hard drives has been factored into our plan...
And if I could just have one follow-up. The cost-downs of 15% to 25% range, do you think that could have like some kind of a downside bias next year as you ramp up 96 layers?
So, if your question is a downside bias to the lower end of that range, I think we'll give you more commentary in December what we think next year will look like.
Thanks for taking my question. This is for the entire team. Inventories have been going up since earlier this year, and I'm just curious how you're thinking about the debt covenants, especially given your guide and your comment about the margin erosion. Is there any of the covenants that would be at the risk of default...
So, in terms of our covenants, through our refinancings and the optimization of our balance sheet earlier in this calendar year, we put ourselves in a good position to manage through volatility. And we remain in good standing with respect to our covenants. And our current forecast keeps us in a good position with respe...
Yeah. And, Mehdi, just to add color to that, because I think it's important to emphasize, when we looked at the decision to cut capacity, not cut capacity, I mean, ultimately, what we were solving for was what did we think was a better answer from a cash perspective. And that action in and of itself, just as a for inst...
But what is it with inventory? And it ties into my question, the days of inventory are up 30% year-over-year up and 2% Q-over-Q, and this is kind of the repeat pattern that happens. And I'm just -- to understand, as you focus on a cost-down, is there something with the mix or is there something with your inventory hubs...
Well, let me give some color on the inventory situation. The inventory is up. It's up more than we want it to be, OK, let's put that out there first. But it's up for three principal reasons. One is is that we have more flash inventory than we'd like, all right? That's why we're taking the wafer start cuts so that we ge...
As we look to close our Kuala Lumpur facility and transition that manufacturing, we need some buffer inventory to enable that transition because you can't unplug it from one factory and plug it into another factory and not lose any manufacturing. You have manufacturing downtime as a consequence of that. That's the seco...
As that market, well, not only begins to soften, but as it softens, we'll see a returning to a more normal level of capacity inventory for capacity hard drives because the demand predictability on the part of our partners or our customers is not necessarily that great. They don't want to go down in terms of having driv...
Sorry if I missed this, but could you give us a little bit more color on the GAAP charge that you're taking to take the utilization down? I guess, my understanding of the way the JV fab (inaudible) works is that when it's underloaded that you still pay the higher cash cost for those wafers reflecting the underloading. ...
So the technical structure of the JV is not as you describe. It's actually that we make cash payments to the JV, but it's not for the purpose of purchasing wafers. As a result, it's what I referred to as the -- we have no incremental cash payments, but we do continue to make cash payments in connection with our JV agre...
The CapEx that we have not funded directly.
So they own the buildings. They do that. They have the labor. We have to pay for the labor, things like that.
Right. So this is a true underutilization charge that we are taking. It doesn't have anything to do with the purchasing of wafers.
Yes. I had a question on the capacity drives. How broad-based is the softness from your end customer. You mentioned outside of US, macro impact, but is it more broad-based on that capacity enterprise side?
Yeah. So on the capacity enterprise side, it is quite broad-based. We're seeing it sort of across all -- our comments relative to China were not specific to the cloud providers. It's really more broadly our assessment of the market in China. So just to separate it distinctly, broad impact on cloud service providers on ...
Yeah. Just to add to that, I mean, really, what we're seeing, and I don't want us to sound alarmist, but we've seen other people talk about it in terms of reports in that. The simplest way of characterizing it in terms of what's happening from a broader demand perspective is there's a bit of a risk-off kind of mentalit...
If you look at, say, it's PC cut, they're going to thin out their inventories, our channel partners are going to chain up. So there's a -- but it's generally under this guise of kind of just taking a little bit of air out of the balloon from a risk standpoint. We are doing the same. We are absolutely doing the same and...
And just related, do you think that the cloud customers might have, like, double order? I know you mentioned that you keep extra inventory to kind of provide service, but do you think that they might have given higher forecast or ordered more and that's why you have inventory?
No, I don't think we have any specific indications of that, but I think, as Steve said, they are taking a more conservative posture. I think in some indications, they are continuing to consume some inventory, but that's not the primary driver.
Given what the share price has done recently plus your outlook to earnings, any changes to the way you think about capital deployment for your stock buyback or the early cadence of it or do you need to keep that cash a little more handy for your closing of Kuala Lumpur and your shifting in other business? So just wonde...
Sure. There's no change -- yeah, there's no change to our capital allocation strategy. As we have said, we have a balanced strategy. We allocate the capital among our top priorities. So investing in the business, our CapEx, and then we look at, of course, the dividend and our share repurchases. We had targeted $1.5 bil...
And then as a quick follow-up, you mentioned the word dividend, that was my follow-up, is how should we think about dividend going forward? Do you use it as a percent of cash flow, as a rate of change in earnings? Could the dividend be reduced since the yield is going higher? How should we think about the dividend?
Well, dividend is a critical part. We're not that formulaic, I would say, number one, but dividend is a key part of our capital allocation program, if you want to call it that, and we continue to expect it to be that way going forward. And we'll look at different factors and see if we want to modulate it. But clearly, ...
Karl Ackerman, Cowen & Company.
I had two questions, if I may. The first question is just really perhaps trying to level-set some things on what is your comfort level about hyperscale and demand beyond the December quarter? I think one of your primary memory peers spoke about some challenges in server demand, server memory demand for the first half o...
Yeah. Let me answer that. So yes, as I said in my prepared remarks, we expect more robust growth to return to that sector in the second half of calendar 2019. So that's the way we're thinking about it.
So the first half will continue to be certainly weak compared to what we saw last year, but that was -- the growth was above the longer-term exabyte growth rate of 40%. But we expect this, if you want to call it, stall from a buying perspective to persist through the first half and then resume to more normal patterns i...
I guess, with that demand backdrop, you obviously run a fairly lean operation today. But how should we think about the trajectory of OpEx as the macro drives some lower revenue near term, but you're also going to rationalize your hard drive facility? Any commentary there would be helpful. Thank you.
While also making sure that we're not cutting our nose off and spite our face in terms of enabling our technology and product competitiveness over a longer threshold.
Hey, good afternoon. I appreciate you guys taking my question. Just sticking right there, Steve, if we could with near line. Should we think -- I mean what do you think is widespread do as you think about first half of the '19 actually buy? Should we think of it is flattish and I know the term growth even though muted ...
Yeah, I think the best way to think about, year-over-year is very flattish.
And then just, Steve, you have mentioned sort of the risk-off broadly. Is there any way to get a sense of -- or do you guys have a view on -- for nearline, how much of sort of the exabyte softening is risk-off versus just sort of cycle winding down?
I'm not sure I'm smart enough to dimension that. I'll turn to see if Mike's got a sense for that.
Yeah, it's a combination of the two. I think, obviously, there's been a rapid build-out that has been occurring. Different providers have had different drivers of their build-out. So, in some instances, they're onetime things that are sort of behind them. In other instances, as you know, in addition to the risk-off, on...
Hi. This is John Donnelly on for Kevin. Thanks for taking my question. In terms of the CPU shortage, can you describe how you see your customers positioned? Are they waiting to buy the storage components or is there a potential for some excess inventory to build up there?
Our view of it would be this. First of all, depending on which part of our market, it's not, let's call it, proportionally impacting the market. So it's less in the first year and more elsewhere. And we actually see it as a constraint to shipments in the period. So that's how we are evaluating it.
Yeah, hi, guys, just looking at the 2019 guide on NAND for 36% to 38% bit growth, just wondering how you spread it between 64-layer and 96-layer.
We haven't commented on that. We'll give you more insight on that in December.
But I will add that we are making good progress. I mean, very pleased with our ramp of 64- layer and 96-layer technology. So we feel that we are very competitively positioned in that regard.
And on the hard disk drive side, you talked about nearline being a little flattish year-on-year first half, but what kind of cost declines could you get -- or density increases could you get next year in terms of when you compare to the cost declines on the NAND side?
Yeah. So relative to the Data Center side of the business, capacity enterprise in particular, we think that cost decline runs roughly at the same rate. So in that sort of 15% to 25%, so it tracks nicely.
Yeah, thank you for taking the question. I wanted to get a sense as to what you felt the new entry Yangtze Memory Technologies' cost competitiveness is relative to your joint venture with Toshiba and whether or not they are absorbing some of the share given the trade tensions that you talked about?
Yeah, they're having minimal impact at this point, minimal to no impact both in terms of systems -- yeah. So thank you very -- go ahead. I'm sorry. Proceed.
And this does conclude our question and answer session. I would now like to turn the call back over to Steve Milligan for any closing remarks.
All right, thank you for joining us and we look forward to seeing many of you on December 4 at our Investor Day. Have a good rest of day. Thank you.
This concludes today's conference call. Thank you for joining. You may now disconnect.
On this week's Technolatte podcast, the Australian team looks at Macquarie Uni's security fail, Qantas ditching internet trials, and what's going on in 4G.
Why did it take so long for Macquarie University to fix a hack on its admissions website? Why exactly did Qantas ditch its Wi-Fi internet trials, and what is going on with the 4G roll-outs in Australia?
Where the roll-outs of 4G networks are at in Australia , and what's in store for 2013.
Andy Murray will hope his suspect ankle stands up to the demands of competitive singles when he takes on Xavier Malisse in the second round of the Aegon Championships on Wednesday.
The Briton, who received a bye in round one as one of the top four seeds, will take on Belgian Malisse in the second match on Centre Court at around 1400 BST, with Rafael Nadal and Juan Martin del Potro also in action on day three.
Murray had been a doubt for the Queen's Club event after damaging a tendon in his right ankle during his run to the French Open semi-finals last week.
There had been another slight scare when Murray appeared to break down in practice on Tuesday afternoon but he later returned to continue the session.
Murray and his brother Jamie then teamed up for the doubles but lost in straight sets to Malisse and Englishman Ken Skupski.
Asked about the ankle on Monday, Murray said: "It's definitely better than it was originally. It was a bit sore obviously when it happened, and playing matches on it didn't necessarily help too much, but it's definitely better than it was and it should be OK."
Murray has won all three previous matches against Malisse, including a three-set win on clay in Rome last month, but the 30-year-old Belgian is a talented shot-maker and former Wimbledon semi-finalist.
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Croatian eighth seed Marin Cilic and French qualifier Arnaud Clement open play on Centre at 1230 BST.
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In the spirit of Black History Month, Kosisochukwu Nnebe a visual artist from Ottawa has created a new installation. It's her first major solo exhibition at AXENEO7, an artist-run centre in Hull. Watch Adrian Harewood's interview with Kosi Nnebe on the program Our Ottawa.

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