Western Digital Corporation (WDC) Earnings Call Transcript & Summary

Good morning. And Chuck, you had me at Ambrish, but you just reminded me how I should pronounce my own last name. So thank you. Look, what a fantastic attendance, especially in this cold fridgeid in New York. So we really appreciate all of you, not just those who are here. We also know, of course, some of you have made the trip from outside of town. So thank you for doing that. And so on behalf of the entire WD team, I would like to provide a very warm welcome to everybody, also to those who are joining us on our live webcast. So now you all know that before I say another word, you know what I'm going to do. Yes. I'm going to turn to our safe harbor statement. So please bear with me and do pay attention to what we have on the slide here. Today's discussion includes forward-looking statements. I've not memorized it. These statements are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially. Additional risks are described in our SEC filings, including our Form 10-K, which was filed on August 14, 2025. This presentation today also includes non-GAAP financial measures. Reconciliations for historical periods are available in the appendix and on our Investor Relations website, plug for that website, www.wdc.com. So great. We got that covered. Let me now turn to the agenda. So you probably did not expect us to be here soon because we were only here about a year ago. The New York City winters cannot keep us out. And we also have quite a few new developments that we want to share with you, and we thought best to do that in person. So here we are. Today, we'll start off with Irving Tan, our CEO, who will really set the stage for the discussions today. We will then have our Chief Product Officer, Ahmed Shihab. And we, from IR, from day 1, we have been waiting to get Ahmed in front of everybody. So no pressure, Ahmed. She got it. And after that, we have Kris Sennesael, our CFO. I think Chris needs no introduction. Everybody knows Chris. Following the Q&A, and this is important -- sorry, after the sessions, we will have closing remarks. After that, we'll have a Q&A session. So all your questions will be covered. So please hold on to your questions until we get to that session. And very important, once we are done with the Q&A, we will have lunch concurrently, we'll have our demo room open, which is right behind me. And so we have some of our latest innovations there, and these are working products that are in our customers' hands. So this is not a demo per se. These are products in our customers' hand. Equally important, we have WD, some of our brightest folks here. So please avail of this opportunity to talk to them. Now you all talk to Irving, Kris and I and Amitesh all the time. This is your one chance, and I say only for today, expand your reach. There will be no business cards being handed out there. But -- so without further ado, I would like to welcome on to the stage. It is my honor and my pleasure to welcome our CEO, Irving Tan.

Thanks, Ambrish. And it's wonderful to see all of you again. It's been just a year since we were last together. But what a year it's been. If you recall back in February of 2025, when we had our Investor Day, we shared with you the strategy of the company, what we were going to do. And over the last 12 months, we've been singularly focused on driving execution against each one of those 6 pillars that we laid out in our strategy. And I thought I'll spend a moment just giving you some examples in terms of what we've achieved. We've not completed it, but we are well on the journey. In terms of really focusing on our customers, we've been focused on building trust with them. We've reorganized our teams to better engage with them across sales, engineering, product management. That's translated into our customers having a lot more confidence into our products, our road maps. And you can see that from the long-term agreements that they signed with us, some extending all the way through calendar year '27, one even extending all the way through calendar '28. But beyond that, they've given us deep insight into what are their needs for AI and the cloud, not only of today, but for tomorrow as well. And a lot of that insight is going to be translated into the products that we're going to deliver both now and into the future. Ahmed is going to give you some insight into that. We continue to execute on delivering industry-leading technology, not just the highest capacity drives, but capacity at scale. And just last quarter, we shipped our industry-leading 32 terabytes, 3.5 million units of them. This quarter, we're projecting to ship just under 4 million units. That's one of the fastest ramps of a high-capacity drive ever. And we've also pulled forward the qualification of our HAMR products, and Alper will give you more insight into what's happening there as well. But it's not just about delivering products. We are also innovating in terms of what we want to do to deliver greater innovations into the drives that we are producing for today and tomorrow, but also innovating to deliver growth -- new growth vectors for the company going forward. We shared a bit about what we're doing in lasers to better improve manufacturability, performance in our HAMR products going forward. But also, we're working on new areas of growth in terms of what we can use our magnetics capability and HAMR fabrication for the next wave of technology growth like in quantum computing as an example. We've also been executing in terms of what we need to do to be able to deliver the exabytes that our customers want at scale, reliably. Our operations teams consistently deliver drive yields above 90% and continue to do amazing things in terms of improving productivity to eke out even more capacity and units within the same investment footprint that we already have. And one of the biggest things that's sometimes underappreciated is the cultural change that we've delivered through the company. We've really harnessed the deep experience that we've had in building hard drives over 55 years, but combine that we're bringing in new talent, engineering talent that's come in from our customers who really understand what hyperscalers need in terms of their architectures today and tomorrow, feature functionality that's really critical to them. We've also brought in new leaders across different parts of the company that are experts in their respective areas within HR and finance. But most importantly, when you bring all this together, what have we been able to achieve? Really strong financial results. If you look at the revenue growth that we've delivered over the last 12 months, the margin appreciation, ultimately, what is done is to translate into very strong free cash flow. And in the last 2 quarters, we returned 100% of the free cash flow that we've generated. And we also were able to bring our net leverage well below the 1 to 1.5x that we laid out last year. But it's not just executing on our strategy and what we feel are the right milestones that we've been hitting. We've also been recognized externally. We got added to the NASDAQ 100 in December of last year, a great milestone for us as a recognition of the financial performance we've been delivering. But beyond the financials, we are also very focused on being a good corporate citizen. We continue to deliver on our sustainability goals. We've also been recognized with the cultural change as one of the best places to work in America as well and something near and dear to my heart. We continue to do it in a very ethical way. Yesterday was also a very important day. We launched our new brand and logo. It's not about a brand and logo. It really signifies our transformation to becoming a data-centric company. So I'll take a moment to just explain to you a bit of the imagery. If you look at the lines on the left of you, that signifies hard drives, but more importantly, hard drives being deployed into data center racks. That's who we are, a data center company that's at the heart of AI and cloud today and going forward. Secondly, if you look at the colors. This represents a company in motion, strategically, operationally, financially, culturally as well. And the simplification of our name to WD just reflects what all of you and our customers call us. We're simple, we're easy, we're WD. So with that, we're very much in the heart of cloud and AI. And cloud and AI is not only a big opportunity today, it's an opportunity that's accelerating at a very rapid rate. It's being driven by AI that's transitioning to large language models that's multimodal in nature. Video is going to be a big driver of storage requirements going forward. But that's just one part. That's been driving a lot of the growth with model with training and development. As we move into the next phase of AI where AI is going to be monetized through inference, inference is going to generate significant amounts of data. And guess what, every query that you put in, every prompt, that history has to be sought. That's going to not only generate significant amounts of data, it's going to also generate significant amount of storage coming out of that data as well. That's just the second growth driver. There's a third one. If you look at some of the innovations coming out in terms of autonomous vehicles in robotics that's harnessing the power of AI, a lot of that is also going to be powered by multimodal LLMs that's going to be able to deliver the intelligence, the ongoing learning that autonomous vehicles and robotics need to bring to the market. And if you put this all together, what we see is a demand for storage exabytes growing at a CAGR of 25-plus percent over the next 5 years. And even with this growth, we feel very confident that HDDs will represent 80% of the storage media that's deployed within a hyperscale environment, the continuing superior economics that we deliver and some of the performance that you'll hear from Ahmed today is further going to strengthen that capability. So it's a very exciting time for us. And as more data gets generated as a result of AI, it's very clear that HDDs will be the predominant data storage media for raw data, content storage, new content generation. And with some of the new capabilities that we intend to bring forward through performance, extend maybe into the opportunities into disaggregated storage as well. But don't just take it from us. Let's take a moment to listen to Karthik from Meta in terms of what they are looking for from a HDD technology partner to support their business, not only today but into the future as well. [Presentation]

So you heard from Karthik, what do they want? At level, they want capacity to be able to meet the growing demand for storage. What does that mean for us? The ability to deliver the highest capacity drive independent of recording technology. Second, they want us to deliver that high-capacity drives in a reliable manner that's consistent with the high quality that they've experienced from us in the past. Third, it needs to be done cost efficiently, as he mentioned, because HDDs are the bulk of storage. So having the right TCO model for them is really fundamental and important to their business model. Fourth, it's not just enough to deliver the highest capacity drive per unit. You need to be able to do it at massive scale because they're betting their ability to meet storage demands on us as a technology partner. Fourth, it's not just about capacity and scale. That's hygiene. We're just meeting the needs of what they need today to support storage requirements. As we move into the world of AI workloads and new capabilities that they're innovating on today, what they also need from us is how are we delivering greater performance in our drives that are suited to the AI workloads of the future. And also, one thing we know about AI, it's pretty power hungry. So how can we contribute to power efficiency that's helping to offset some of the energy requirements that AI requires as well. But ultimately, what they want is when you bring this all together, how do we give them the capacity that they need, the quality that they're used to, the cost efficiency that they derive from HDDs and new capabilities in a way that there's no disruption. No disruption to their operations, no disruption to their software stacks and the innovations that they're driving within their business. So they can count on every drive that we produce to be plugged and played in very reliably. So what are we doing as a company to deliver to our customers' needs? You're going to hear a lot more from Ahmed. But just let me set it up for him across 4 key things. First and foremost, what you're going to hear is that we're going to deliver the highest capacity drives at scale with the right reliability and quality that our customers expect from us. Second, we're going to ensure that we get them smooth transitions across recording technologies. There's a lot of talk about ePMR and HAMR. The fact is, if you ask our customers, they don't really care about recording technologies. It goes back to those 6 things we mentioned, high capacities, reliability, scale, cost efficiency, performance and efficiency, power efficiency and then ultimately, minimal disruptions. And that's what they want. Third, we're going to focus on delivering innovations that are required to power the AI workloads of the future and to address some of the limitations that HDDs have. Higher bandwidth requirements, higher throughput requirements are what AI applications need going forward. And you're going to hear a lot more from Ahmed in terms of how we're going to address that. Last but not least, how do we make it easier for our customers to adopt technology? Not everyone is blessed with some of the big hyperscale resources, big storage teams that are able to build storage racks and to be able to design storage architecture. So we're also making it easier for the next generation of AI players, the Neo clouds to be able to adopt our hard drive technology in a very easy way without having to have this massive investment into building out storage teams. But we're not -- what you're going to hear today is not the end of our innovation journey. It's just the beginning. We have a rich set of core capabilities and IP that we're continuing to build on. Just the new laser capability we just announced is one aspect. of it. Well we're continuing to focus on our rich IP capability across magnetics, material science and now photonics has been added to that list. And we have deep systems expertise that we are able to bring together hardware, software and firmware to deliver reliable quality systems to our customers. And this is something we're going to continue to innovate on, and we'll be sure to have innovation days into the future where we can keep you updated in terms of what we're doing. So ultimately, what can you expect from all of us going forward? It's 2 things, 2 very simple things. If you forget anything I said, just remember these 2 things. First, the focus on execution that you've seen from us over the last 12 months, that is going to continue. That is going to be the mainstay of what we continue to do. We're going to stay laser-focused on continuing to execute for our customers and for our shareholders. Second, we're going to combine that strong execution focus have a massive acceleration of innovation. So you're going to see a lot about what we are delivering in terms of innovation today. Ahmed is going to walk us through a lot more about that. But ultimately, what are all of you here interested in? How are we going to bring that continuous execution focus and speed of innovation together and what does that mean to the returns and the value that we can create for our shareholders. And Kris is going to walk us all of us through the updated financial model that we see that's derived from all of these things coming together. So with that, I'm very pleased to be able to introduce our Chief Product Officer, Ahmed Shihab on the stage.

Thank you, Irving, and good morning. Good morning. There you go. That's better. We need to warm up in this cold weather. I'm Ahmed Shihab, the Chief Product Officer here at WD, which has been a culmination of a long journey for me that has started when I was actually a little boy at my father's carpentry workshop. Through him, I learned that turning design ideas and concepts into products customers loved is a wonderful thing. Delivering what customers wanted, kept them coming back for more. And sometimes they brought their friends. It's really ignited a passion for me, building amazing products that customers needed and they kept coming back for more. Because when you delight customers, they like you. They buy from you. They keep coming back for the product. It's good for them, good for us. At AWS, Microsoft, that passion became customer obsession. It was rooted in scale and disciplined execution. At WD, we are customer obsessed. And we make amazing products, marvels of science and engineering. For me being here, it's being home. We care about our customers. We care about our products. What a moment to be here. AI, much like the Internet and mobile and cloud has shaped our lives for the last 30 years. AI is set to do the same thing and transform everyday experiences. We all use it. I know I do. It's in your car. It's in the factory. We ask it questions constantly. It's become indispensable. It's fast, it's growing, and it's here to stay. But AI is not one thing. It's not magic. It's built of many workloads. To answer our questions, AI needs data. That data is ingested to ingestion workloads in the cloud that collect data, whether it's sensor data, whether it's data from your car, whether it's data that has been stored in the library of Congress. It's data that just needs to come in with documents. That data goes into towards customers who use object stores and parallel file systems to store all this data called the cool tier. Lots of data gets stored on that. But that data by itself has to be prepared, has to be ready. You've heard words like vectorizations and a bunch of other technical terms. What it means is that we clean up that data and make it ready for training. We read the raw data, we process it. So that warms up the workload. It needs more transactions, it needs more work. And all that is handled through the object store software. Then comes the big workload. We have to train the models. We've heard a lot about training. It's where the GPUs come in. And all that data is pipelined from the object stores through SSDs that sit in the GPU boxes to then teach the model how to think about the world, to extract all that data. You need performance in that space. But AI becomes profitable through inference. That's the part we all interact with. It's the part that answers our questions. needs a lot of performance because it's dealing with millions and millions of users all at the same time. But it also needs to understand who you are because the more you use it, the more data it generates about those interactions, the more it gets to know you. And that data is then generated and then stored again. So the more we use AI, the more data is generated and the cycle continues. I'm sure you have the experience that it feels like AI is learning over the last few years. I certainly had that experience. I had the privilege of being an early user of Copilot at Microsoft. And you can literally watch it learn day by day, get better day by day. We started to think of these workloads like a brain. We all learn and it was learning from data. But much like we learned and trained our brains at school and universities, we typically went to a library to learn. One way to think about how storage and all these complicated technologies work is that AI's brain goes to storage to go to the library. This library in the cloud is 80% hard drive. It's just a fact based on our experience. Customers want to grow that library, want to add to it. Our job is to grow with them. But to do that, we have to understand what our customers need. We have to understand them. They have to be the center of how we think. It's not just what they want, but also what they need now into the future because when we understand their needs, we can build the technology they're going to need for the future, so it's ready when they are. Customers trust us. They trust us because of our 55-year history of delivering innovation with quality and reliability. They trust us and they have deep conversations with us about what they need, how their future is evolving so that we can think ahead of their needs. And you heard from Irving's presentation, what Karthik said about how he views storage, how he sees the essential role of the hard drives. But what really resonates with me is what Andy Warfield, AWS is architects for all storage and one of the main brains behind driving all their storage technologies. He said this at re:Invent last year. To me, what Andy is saying is I need innovation. I need innovation from the hard drive industry. I love that innovation. But please don't let it break my business while you're delivering that innovation. Back to the point of smooth, no disruptive changes. And this demand at that scale is just not negotiable. And it's not just Andy, we're hearing that from or AWS. We hear that from every customer. They know how to pick up the phone, so you tend to call me. And we're hearing that, we literally hear that from every customer. Because -- so this is what AI needs, what customers are asking for. And what Andy's words are saying has really shaped and continues to shape our road map. This is more than you've seen in the road map for the 5 years in WD in the past. Capacity delivers the exabytes customers need to drive AI to build and continue to evolve and grow AI. Performance is an important part of storage in the cloud, storage for AI. We need more of it. And because power is so important to store that enormous amount of data that is being created through inference, we need to deliver lower power drives. And as Irving pointed out, there is a new class of customers with large data estates that don't have the resources or the time to build a storage stack from scratch to take advantage of UltraSMR, all the capacity points and the performance and the power that we are delivering. For them, we'll simplify it. We'll give them a shortcut through our platforms. There's a lot here. But you're asking, can we get going? All right. I'm sure top of mind for most of you is what is our HAMR story. Anyone care? All right. So this is our HAMR drive. It's real. You can see it working next door. But most importantly, it's in our customers' hands. They're qualifying it. We're focused on the reliability of the new technology, and we're focused on increasing the aerial density of those drives. Last week, we announced we have customer already qualifying our HAMR drives. Today -- thank you. But wait. Today, I am very excited to say we have our second customer. it's not just having the drive. It's making sure it delivers what customers expect and need to so we don't break their business. Here, this chart shows 5 HAMR drives in a box, running 3 different qualification workloads. Each line is a different drive. Each color is a different drive. What you see here is the performance and the consistency of that performance across all those drives. This is just a sample. We have thousands of drives running. The key for us is to make sure that the drive performs and behaves and is reliable enough such that the customer does not have to change their software and by making the performance of a HAMR drive virtually identical to an ePMR drive, they don't change their operational practice. That's a painful thing for a hyperscaler. But more importantly is that we can put an ePMR drive next to a HAMR drive in the same box, same infrastructure for the same workload. Simplify the transition, make it a smooth transition and a smooth ramp for the customer. So you ask, how do you do this? Or maybe you don't, what I do. We based our design on our trusted 11 platter ePMR platform, same design that customers have been deploying in the millions for the last 10 years. It's 11 platter mechanics. It's the same firmware as the ePMR drive so that we can focus on the reliability and the aerial density increases of the recording technology, the HAMR part. Today, in our labs, we already have 4 terabyte per platter. I know it's early, but to do the math, that's 44 terabytes per drive. So it's the same architecture as the ePMR drives that smooth the transition, that means you could use the same boxes, the same software, simplifies the transition. And we deliver the areal density increases to get us going on the ramp. Our HAMR drives start at 40 to 44. And as you saw in the road map slide, we showed 100. So how do we get to 100 terabytes from here? As you all know, I'm sure, HAMR requires lasers. Lasers provide the heat that makes the recording possible. It sits on every recording head. This is a micrograph of the laser sitting on top of the HAMR drive. Today, everybody in the industry, us included, use what's called an edge emitting laser. It's the gray box that you see sitting on the top. They're great. They work really well. They are the ones powering HAMR today. But they have 3 challenges. The light produced sometimes is wasted. So they waste a bit of energy. That could be better used elsewhere. They're quite tall. So we have to make sure the platters are some distance apart from each other. And during the hard drive manufacturing process, the yields are not as big as good as we'd like them to be. So for the last 6 years, we've been working on our own patented laser technology. It solves for those 3 problems. By emitting more light, harnessing more of that light into the recording technology, we will increase the aerial density of the HAMR platters from 4 terabytes all the way to 10 terabytes by 2028 per platter. We have 11 platters. It's one of the reasons I'm confident about 100 terabyte HAMR drives by 2029. This technology is not theoretical. It's actually already in the labs. We've watched it do in the recording. The other part of it, as you can see from the micrograph, they're shorter. So it allows us to add yet more capacity per drive by packing up to 14 platters into the same 3.5-inch form factor. 10 terabytes, 14 platters, that sounds like 140 terabytes. Well, thank you. So this is us inventing ahead of the customer on capacity. The third part, I haven't forgotten, is the lasers emit lights vertically, not from the edge, which means we can test the laser and the head independently, so we can increase our yields. Very excited to see this in the lab, not just in the lab, they're actually in drives recording HAMR physics. So we want to run ahead of the customers. We have all this technology in our labs. And it is how we get to the road map. That means we can accelerate the pace with which we introduce new capacities. But that pace has to be matched by the pace our customers can take that capacity and put it into their production fleets. As I'm sure you know, qualifying a hard drive is a long process. It used to be we waited until we get to the end of the manufacturing process where we can produce drives and volume, then we start the qualification. As a customer, I didn't like that. It just took too long for us to get the capacity into our fleets. Being at WD, I'm pleased that we actually did something about it. Together with our customers, we started to introduce the hardware into our labs and the qualification of the hyperscaler software so that we can start the qualification process while we're still developing the drive. That cuts out months from a qualification process. So by the time we're ready for volume manufacturing, the drive is ready to ramp. As Irving said earlier, we've ramped up our latest generation of drives very quickly. That's one of the reasons. The other part with rapid generation of more capacity points, customers will have a lot of qualifications. So instead of qualifying every single capacity point, they qualify one set of capacity point, let's say, 36 to 41 terabytes, and we will just ship them more capacity as we make it available. One qualification, many capacity points. And the next one is going to be at 42 to 56 and so on. So that innovation, not just in the drive design, but also in the processes we do gets us faster time to capacity in customers' hands in their fleets where they need it the most. So putting it all together, our HAMR capacity goes from 40 terabytes to 100 terabytes by 2029. And as you saw, a little bit beyond that. That's what gives me confidence. We're working with our customers to prove the reliability of the technology. We want them to feel very sure of our reliability is as good as they used to. And to deliver a smooth transition on these capacity points, we're extending our ePMR road map. So our ePMR road map, ePMR is the workhorse of the industry. It has been delivering capacity for the last 10 years, and AI has also changed the rules. Customers are no longer focused about technology transitions, recording technology transitions. They want capacity now. They want a proven technology so that we can scale it quickly. Customers challenged us to deliver more capacity. But the industry was told this was not possible without HAMR, right? Well, we did it anyway. I'm very proud to show you the world's first 40 terabyte ePMR drive in customer qualification today. This drive is 11 platters. It's the existing design we have been building and using. The way we got to 40 terabytes is through material science, changing recipes, engineering the heads differently, using our triple actuation technology and a lot of determination from our engineers. They wanted to deliver for the customer. This is already -- I think we talked about -- it's already in one hyperscaler, and we are now adding our second. But it's not enough to have the 40 terabytes. Does it deliver the experience customers want. Same as HAMR, we tested during development to make sure that we are ready to qualify that drive for customers. What you see here is the same view of the workloads, the rewrite workloads that our customers use to deliver that capacity. The short answer here is it's a proven technology. They qualified it quickly, and it's already at high yield. And it meets the workload demands without them changing their software. It's exactly what the experience we want for customers is. But there's more. Why stop at 40? Our customers want the overlap between HAMR and ePMR. We continue to drive media recipes, head designs to drive aerial density. We're increasing the aerial density per platter. We're also borrowing some of the ideas from HAMR. So to get to 60, we'll go to 12 platters. We're packing more capacity inside the same 3.5-inch form factor, all without changing the power profile of the drive. So customers don't have to spend more energy doing what we do. So the overlap is designed not to break the customer business. They can transition to HAMR as and when they want. The capacity points give them a choice between where to go to ePMR and HAMR, and they will qualify both, so they have the choice in their infrastructure. These drives are made on the same manufacturing lines because they're the same design. In fact, we're so confident in our road map for HAMR. From last year, we said back in the '27 for the ramp, we pulled it in by 6 months. So it's ramping in the first half of 2027. Our road map goes from 40 terabytes all the way to 100. And you can see all this next door. But while capacity itself is important, we also said that AI needs more performance and power efficiency. This performance has led some customers to think about using QLC flash to provide that performance in addition to hard drives. It's very attractive because -- but QLC has a problem when the data is constantly moving as it does in the AI workloads and in the cloud workloads. QLC wears out. And that means you have to make a lot of changes in your software, so it doesn't wear out. Otherwise, you end up with silent data corruption. And that is just as scary as it sounds. Hard drives, on the other hand, just don't. They don't wear out. They'll operate for years without wear out and customers like that and it simplifies their code. The other reason to consider QLC flash is that the headline performance of a QLC drive is 6 gigabytes per second. That's way more than the 200 to 250 megabytes per second of a hard drive. But that's a headline number. It's only true when that drive, that QLC drive is attached directly to the GPU with a great big bus. In the real world, in object stores deployed in massive scale, that's not how it's done. Hard drives and QLC drives are connected to the network via a thing called the SAE interface. It's a thin pipe that takes data from the drive to the network. It can only support 530 megabytes per second. So customers would get less than 10% of the performance of QLC for 10x the cost of a hard drive. Do you think that's a good deal? I don't now or as a customer. But you don't have to take my word for it. Aaron Ogus, who runs the storage world, the storage technical leadership in Microsoft, all of it past and present shares our opinion. [Presentation]

With Aaron asking for without asking, is, hey, can you give me a hard drive that fills the pipe? That sounds incredible, not something that we've seen before. Well, this is how we did it. [Presentation]

Isn't that just fabulous? This is not theory. Customers have this in their hands. They didn't trust us when we said we could do this. They just said, hey, show me. So we did. We put them in their hands and they tested them and they see the same results. And you can see the results next door. Typically, customers have 2 questions for me in rapid succession when we talk about these drives. One, when can I have them? Because they fit in my existing infrastructure. I don't have to change anything. I just get more. And the second, it doesn't matter what I say, go faster. The thing they really love about this is that we can go to 4, 6 and 8x the performance. It is scalable. By the time we get to 100 terabytes, we could be 8x the performance of today's drives. We already have the technology to do it, and we're developing it, so we're ready for when customers are ready for it. We'll introduce this capability at the 50-terabyte mark to meet the customers' demand so that they are ready for us to consume and take advantage of all this performance. But bandwidth, the megabytes per second from a drive is not all the story. Yes, we can saturate the link at 500 megabytes per second, but we also want more transactions per second. As you know, the transactions per second has to do with the actuators, the way they move. So we have to double that just to match the bandwidth, right? What's exciting about it is not the change in the software. But I know you're thinking, haven't we seen this before? No, it's a simple answer. What you've seen before required hardware changes, software changes and more power. Other than that, it was great. But that didn't meet what customers needed. This design will fit in an existing customer chassis with that change. It can be made on the same manufacturing lines. And they just see more performance. So customers are really excited by this. double the transactions smoothly for customers. By the way, you can see it next door. It's really cool to see the arms moving. Dual-pivot technology helps customers focus their software effort on improving more performance for AI versus having to deal with how the hard drives are working. And we'll introduce this at the 60-terabyte mark. We are inventing ahead of when customers need this technology. So we're ready for them when they are. So we're starting to put high-bandwidth drive technology in our customers' hands today. My biggest problem is finding them enough material so they can start testing. Dual pivot technology will be in their hands in late '27 and '28. So all the performance that the customer's hardware can support their existing boxes, their existing software, their existing networks without having -- can be delivered from these drives with the capacity that we are building without having to use QLC. We deliver performance 10x cheaper than QLC can. But both technologies in next door, please take a look for yourselves. And equally important, this technology applies to ePMR and HAMR equally. It's independent. As we said earlier, inference generates a lot of data. That data has to go somewhere. Not all that data is useful. My kids keep generating bird videos. They're obsessed. I don't think the world needs that many bird videos. So not all that data is going to be going to the cool tiers. We need something new where we still want to store that data, but we want to store it with a lower TCO. One way to do that, the way we think is sensible, is to reduce the amount of power the drive consumes, optimize -- we optimize the drive differently. So by spinning the drive slower, we can reduce the power by 20%. But we only trade 5% to 10% of the sequential I/O, not something that the customers have seen before or even thought was possible. It's because of the combination of technologies that we talked about and a few other things under the hood that allows us to make that trade-off. And the icing on the cake is you got 10% more power -- sorry, more capacity, more power. So at 100 terabytes, that's a whole 10 terabytes more. Pretty meaningful. Same drive, same infrastructure, same software, same manufacturing line. So these drives increase our manufacturing velocity. They work for customers as they need them today. And we'll start qualification for this drive in 2027, waiting for customers to get -- take advantage of the capabilities and build the cooler storage tier they've been wanting to build for some time. So all these technologies that we just described extend the reach of hard drives into our storage library on the performance side, more towards the door, accessing more of the data that is fast paced. And on the other side, we got closer to the archive where data that needs to be accessed in a few hundred milliseconds or a second don't have to be thrown to tape or it takes 8 hours to retrieve. We're confident through this reinvention, this work that we're doing that, that 80% share of the library will increase. So customers get bigger, faster, more power-efficient drives. And outside the hyperscalers, as we just described, customers would like to take advantage of hard drive economics, not because they want to, but because it's using flash for their business in the beginning made sense. They went quickly, so they use flash, build up the business, build up the workload. But that agility trade for cost is becoming a barrier to their profitability as their workloads get bigger. Their data estates grow fast as their businesses become more successful. So they need hard drive economics. We are at least 10x cheaper. We have demonstrated that we can deliver the performance and we can deliver the cost efficiency and we can deliver Ultra SMR. But these are features that are quite complex for customers to do from the beginning. So we want to offer a shortcut. The shortcut is a simple, open API that allows customers to integrate that API to their existing file system, their existing object store. We'll make it available on flash so that they can continue to use what they have and what they're used to. But we'll also extend it to abstract all the hard drive features. So they can take advantage of UltraSMR. They can take advantage of high-bandwidth drives, dual-pivot technology, 100 terabyte drives. So we do the qualification work behind the API. So they don't have to. So we get faster time to capacity and technology, and this will be available for them in 2027. So this road map you see here, it really changes how we see storage. For years, it was treated like plumbing, necessary, invisible, a cost to be avoided. AI changed the rules. Storage is really how where AI goes to learn. AI becomes a storage, becomes a foundation for AI. And the hard drive is the building block of that foundation. This road map here is not just about capacities and performance, it's about the reinvention of the hard drive. It's about making it easier and more accessible to use both the performance capacity and economics of hard drives. So we're delivering seamless capacity growth to 100 terabytes per drive, more exabytes for customers, more performance and the cost structures they need. So customers can focus on building the AI brain. a great moment to be at WD. Because while our customers are building that brain, we can focus on building the beating heart of AI, hand-in-hand with those customers. With that, thank you. It's now my pleasure to introduce Kris Sennesael, our CFO, to talk about the updated financial model.

It's amazing to see all this innovation in WD. And thank you, Ahmed, for your leadership, and thank you to Ahmed and all the engineers at WD at picking up the pace of the innovation inside the company. It's remarkable. So good morning, everybody. It's great to see you all here in New York, Ice cold New York, exposing yourself to this Arctic blast. I think it's time to pick up the heat a little bit, right? So so far, you've heard from Irving and Ahmed about our strategy, our focus on execution and innovation. And especially from Ahmed, you've heard all the innovation that is fueling our industry-leading technology and product road maps, which is driving a lot of positive momentum in WD. And so now it's time to connect the dots between all the innovation and what it does to our business model, our financial model and what it does for you as a shareholder, current shareholder or prospective shareholder and how we create long-term shareholder value. Before I go into the details, I hope that everybody realizes today that the WD you see today is a structurally different WD compared to Western Digital of 3, 5 or 55 years ago, right? Today, 90% of our revenue is tied to data center build-outs, cloud and AI, 90% of our revenue. And more and more data centers are being built out as more and more data is being stored in the cloud. And now we see an acceleration because of AI, AI workloads. More data is being used for training of the models, more data is being used for inference. And that by itself creates more data that needs to be stored. And Irving already told us 80% of all the data in the world is being stored on hard disk drives. That actually has changed our business and our business model a lot. right? We used to be a seasonal cyclical business. But today, that's no longer the case. Today, we are a long-term secular growth company tied to a strong secular growth in data center, cloud and AI. And that's a big change. In addition to that, we are focused a lot more on innovation, right? Innovation in our technology road maps with HAMR, PMR, increasing the performance of our drives, working on power-optimized solutions. And all of that is really in sync with our customers. And it's all about us providing more value to our customers. That's good for WD. That's good for our shareholders. And last but not least, today, we can do this from a position of strength. We have a strong balance sheet. We have a great business model and financial model, and I'll talk more about that. We generate a lot of cash, and we can deploy and invest that cash as well as turn it back with confidence to our shareholders. And all 3 of that is a great recipe to create long-term shareholder value. And that change, this major change is very recent. It happened all in the last 12 or 18 months. And the team here really made a lot of changes. It started on or about a year ago with the separation of our flash business and the hard disk drive business. And we created a strategically focused hard disk drive company with a new management team, a great new leader with Irving, a much stronger focus on innovation, as we talked about, and much deeper customer engagements with leading companies in the data center and storage and AI space. And let's have a look at our scorecard, what this new management team in the last 12, 18 months has done. And on the chart here, you can see fiscal '24, '25 and '26. '26 is not done yet, as you all know. Fiscal '26 ends in June of '26. And the number shown here is 2 quarters of actual 1 quarter, the third quarter at the midpoint of the guide and the fourth quarter is even consensus estimates. So this is the expected number for fiscal '26. And look at what we've done. Revenue in 2 years, we've doubled or is expected to double from $6 billion to up to more than $12 billion, which is a 40% CAGR over 2 years. Of course, we are very much focused on growing revenue, but that's not the only thing. For me, as important is the quality of the revenue, right? It's how much value we provide to our customers because that will drive the long-term success of the company. And the value we provide is clearly reflected in our gross and operating margins. And look at what we've done with gross profit and operating profit. The growth is even faster than revenue and gross margins has improved from high 20s in fiscal '24 to high 30s in fiscal '25 and is expected to further improve in fiscal '26 to mid- to high 40s. And because of the leverage we have in our model, operating margins have even faster improved now with operating margins expected to be in the mid-30s in fiscal '26, right? This is a remarkable change. And this is just the beginning, and I'll talk more about that. later on. So the strong revenue growth, the expanding gross margin also translated into very strong cash generation, right? Look at what we did just in the last 3 quarters. Free cash flow margin was greater than 20% in the last 3 quarters. And again, it's a result of driving revenue growth, expanding margins, but also focus on working capital management. Just in the last couple of years or 2 years ago or so, the cash conversion cycle was more than 100 days, right? Today, in the last quarter, cash conversion cycle is approximately 40 days. So major improvement there. And we also have a very disciplined approach to our capital expenditure, right? We've guided and indicated that CapEx is expected to run on or about 4% to 6% to revenue. Actually, in the last couple of quarters, it was below the low end of that range. And true to our commitment that we made in February of 2025, we have returned all the free cash flow back to the shareholders through a combination of our dividend program and share repurchase program. So let me go back for a second here to February of 2025. And Irving and Ambrish and the team, I think, did a great job at the Investor Day back in February 2025. And at that time, they had a set of assumptions, which made a lot of sense at the time. And let's just do a quick recap, right? The team was expecting nearline exabyte growth compound annual growth rate in the mid-teens, with potentially an uplift if and when AI kicks in. They also were expecting pricing to go down in the mid- to high single digits year-over-year, in line with historical trends. And they were expecting innovation in the company and a gradual ramp in areal density and a gradual ramp to higher capacity drives. Well, in just 1 year time, a lot of things has changed. And here are the new set of assumptions that we see in our business. On exabyte growth, nearline exabyte growth, we are now expecting over the next 3 to 5 years, nearline exabyte growth on a compound annual growth rate of mid-20s. And that is we have a lot better visibility than we used to have because of the deeper customer engagements. We basically have the POs for '26 in hand. We have long-term agreements with some of our customers, 2 of them covering all the way until calendar year '27, additional customer for '27 and '28. So much better visibility, much higher confidence in nearline exabyte growth of mid-20s for the next 3 to 5 years. By the way, with a lot of our customers, we talk -- we have deeper insight and we talk about '29 and '30, right? We don't have commercial agreements there, but we do have much better visibility. Pricing environment has changed drastically as well. We no longer expect price declines. We actually, over the next 3 to 5 years, expect what I call a stable pricing environment. Now probably I have to explain that a little bit more. For me, a stable pricing environment is ASPs per terabyte kind of flattish to slightly up low single digits, right? And just to illustrate that, if you look at what we did in the September and December quarter of 2025, ASP per terabyte was up 2%, 3% year-over-year, right? Actually, if I look at calendar year 2026, 4 quarters of calendar year '26, I do expect ASP per terabyte to go up mid- to high single digits year-over-year for all 4 quarters, mid- to high single digits year-over-year for '26. And then beyond '26, I expect us to continue to operate in what I call a stable pricing environment, of course, from the higher level that we established in '26. And in terms of product mix, well, if you listen to Ahmed, we definitely have been able to accelerate the pace of innovation, and we will now drive a more accelerated improvements in areal density and accelerated improvements to higher capacity drives. And all of that gives us confidence that we will be able to supply to the higher demand in the mid-20s that we see. It also will help us to expand profitability because those higher capacity drives will result in a lower cost per terabyte. And last but not least, we will be able to do that without having to add more unit capacity, right, and without having to spend a lot more on CapEx. And let me explain that a little bit more. Last quarter, the average nearline drive capacity was on about 22, 23 terabyte per unit per drive. And despite the fact that we have a 32-terabyte drive available, UltraSMR, ePMR. We actually ship that product in high volume. Last quarter, 3.5 million units, the vast majority of that at the highest capacity point of 32 terabytes. And this quarter, expected to be close to 4 million units. If we can convince all our customers to adapt the highest capacity, we can ship 40% more exabytes. It's that simple, right? And we are working with all our customers to qualify the higher capacity points. We're working with all our customers to qualify UltraSMR. And the story, of course, keeps getting better, right? Ahmed talked about pretty soon, we will have 40 terabytes available. That actually will allow us to ship 75% more exabytes as over time, as we qualify and ramp the new product with all our customers. And then soon after that, we will have 44 terabyte, which basically will allow us to double the amount of exabytes that we can ship to our customers without having to increase the unit capacity, without having to spend a lot more on CapEx. And the story, of course, keeps getting better if you think about 100 or 100-plus terabyte per drive. So all of what it does, it creates more exabytes that fuels the revenue growth that also is a key element in our gross and operating margin expansion as well. And with that, let's update our long-term financial model. I mean, last year, less than a year ago, the team provided a financial model. But again, so much has changed in the business. The business has really transformed strategically focused hard disk drive company with a lot of acceleration in our innovation road map. So here is the new model. You can have a look at it. But before I go into the numbers, a couple of clarifications here. First of all, this is a long-term target model, meaning we're not operating at those profitability levels yet, right? But we have clear line of sight in the next 3 to 5 years to hit those targets. Second, you can see on all of those numbers, they have a greater than sign in front of it. That's on purpose. There is no ceiling to those numbers. And we are working hard, and we have line of sight to go and hit those targets in the next 3 to 5 years and then continue to operate the business at or above those target levels. So let's look at the model. We are now expecting revenue growth on a compound annual growth rate of more than 20%, right? And that is based on nearline exabyte growth in the mid-20s and a stable pricing environment. We're now expecting and targeting gross margins greater than 50%. And that is based on a stable pricing environment on one hand and further cost reductions on a cost per terabyte basis, driven by a move to higher areal density and higher capacity drives as well as great execution by our operations team that will continue to drive down the cost in our global manufacturing footprint as well throughout our global supply chain. And with leverage in the model, we target now operating margin greater than 40%. That means that our operating expense, which is on a glide path to 10% or less than 10% to revenue, right? And so revenue growth, expanding gross and operating margin in combination with good working capital management and disciplined CapEx, again, within the 4% to 6% to revenue, this translates into a free cash flow margin target of greater than 30%. And there is one more thing. When you add this all up and put it in your model, we target over the next 3 to 5 years to run the business with earnings per share of greater than $20. And when you combine all of that, this is how we create long and durable shareholder value. This is our new model. So let's talk a little bit about capital allocation. Our priorities in terms of capital allocation have not changed. We will continue to invest in the business. We will reduce the debt and return all the cash back to the shareholders. And I'll talk about each of them a little bit more. First of all, we will continue to invest and reinvest in the business, right? We've increased our profitability targets without starving the business. I mean innovation is so important. Through innovation, we create a lot of value for our customers, for WD and for our shareholders. And so there is no hesitation. Our HAMR road map, the ePMR road map, getting to higher performance drives, power optimized drives, there's no hesitation. Innovation is key, and we will continue to drive innovation in the company. Second, we will continue to reduce our debt. And as most of you know, before the separation, our net debt position was on or about $5.1 billion. Since the separation, we've been able to reduce our net debt position to $2.7 billion, which is basically we still have $4.7 billion of debt. We have on or about $2 billion of cash, you get to $2.7 billion of net debt. But don't forget, we still have 7.5 million of SanDisk shares that we had since the separation. 7.5 million of SanDisk shares at today's share price is only about $5 billion, right? So really happy with that. And I've said it before, it's our intention to monetize that share, right, and to monetize that share on or about the 1-year anniversary of the separation. I have to clarify that a little bit because we do -- and we typically do that in a debt for equity type of transaction, right? And I just said we have $4.7 billion of debt. However, only $3.1 billion of debt qualifies for a debt for equity transaction. I have $1.6 billion convertible debt that doesn't qualify for this transaction. So -- so we will -- and we are exploring alternative ways to monetize that. One option is that we do an equity for equity swap for the remainder part, which could lead to further share count reduction. So stay tuned for that. But assuming good execution on all of that, we could actually move from a net debt position today of $2.7 billion to a net positive cash position once all that is done. So strong balance sheet, good progress on the debt reduction. And then last but not least, right, we are committed to continue to return the free cash flow back to the shareholder through a combination of our dividend program and the share repurchase program. The dividend, we are committed to this program, and we are committed to grow over time our dividend and dividend payout. On the share repurchases, you all know in May of 2025, the Board approved a $2 billion share repurchase authorization. We immediately switched it on. And as of today, we've already used $1.5 billion of the $2 billion, right, and repurchased 14 million shares. And because of the confidence that the Board has in our business model and the management team has in our business model, yesterday, the Board approved a new $4 billion share repurchase authorization, $4 billion that sits on top of the $2 billion that was approved, of which still $0.5 billion is left. And this really underscores our commitment to continue to generate a ton of cash and also our commitment to return that free cash flow back to the shareholders. while, of course, we continue to invest in the business. So in summary, it is a really exciting time to be part of W&D. W&D that is a structurally different company that is very well positioned to drive long-term growth, to continue to expand our gross and operating margins, to continue to focus on cash and cash generation, cash that can be returned back to the shareholders. And when you put it all together, drives a lot of earnings per share growth, and that is how we create long-term shareholder value. So thank you. And with that, I'll turn it back over to Irving for the closing remarks.

Thank you. Well, I thought I'll just make it very easy in the wrap up and just say 2 simple things. So if you're thinking about WD, why WD and why WD now? First of all, I hope you taken away from today's session, we've really pivoted the company to really be focused on our customer. That's building trust, that's building confidence in the product that's giving us insight that's fueling the innovation pipeline of the company today and going forward. Secondly, we have transformed to being a data-centric cloud AI-focused hard drive company. front and center in one of the fastest-growing, most exciting segments of any industry in the world. Third, you heard from Ahmed, the industry-leading technology road map that we are delivering, not just about capacity, which this industry has been very focused on, and we are focused on it, but also on performance, on efficiency, making transition simple and ensuring that a new class of AI cloud players can adopt our technology easily as well. We'll continue to leverage on the resiliency, the innovation, the laser focus on productivity of our global manufacturing footprint and the vertical integrated nature of what we do. Fourth, you can have our commitment that we have a world-class team, all 40,000 people, WD drivers that are laser-focused on continuing execution that you saw from us over the last 12 months and going forward. And obviously, Kris really brought it home with just a strong financial model that we've laid out and the focus on ensuring robust capital returns going forward. So if you had any doubt about why WD and why now, I hope we've dispelled all of that. And our focus is on ensuring that for all of you, our business partners, our shareholders, we're here to deliver long-term value creation for all of you. So we're going to transition to Q&A. So just give us a moment as we set up the stage. And so I'll invite back Ahmed and Chris and Ambrish, who's going to help us facilitate the discussion as well.

All right. Great. I didn't anticipate too many questions.

Amit was staring over my shoulder.

I guess we have to go first with Amit in that case. So just a quick, we have mic runners or 4 of us, 4 of WD mic runners. We'll start off with Amit, and then we'll queue up Aaron Rakers right next to Amit. Name and firm name.

Amit Daryanani, Evercore. Thanks a lot for the presentation. I appreciate the $20 road map makes the model a lot easier.

Greater than $20.

Fair enough. Greater than $20. I guess the 2 things that stood out, and I'd love to get your perspectives on this. One is on the cost per bit decline. Can you just talk about how are you thinking about cost per bit declines over the next 3 to 5 years in the road map? Is that different in ePMR versus HAMR? Just if you can walk through that math a little bit. And then, Irving, for you, it seems like you want to commit towards the ePMR and a HAMR road map at least through calendar '28. If all customers care about is the highest capacity, the most reliable at scale, why have a dual technology road map when it seems like HAMR is going to work out? Just walk through that dynamic given what customers are asking about.

That sounded like more than one question in one question. So let me try to address the cost down question first. So obviously, the cost down that we've delivered dollar per terabyte has been about 10% over the last few quarters. Obviously, we're not guiding to anything beyond that. But more importantly, what you've heard from Ahmed, even as we deliver a road map that has both HAMR and ePMR, the common platforming that we've done, right, to ensure it's common mechanicals, the fact that we've internalized our own laser capability gives us the confidence that we'll be able to maintain a very competitive cost down trajectory going forward. In relation to the road map, and I think Ahmed, feel free to join in. I mean, obviously, what we want is to give our customers really smooth transitions. And you heard how risk adverse they are to transitions given the size and scale and the importance of storage to their business. And so we'll continuously work with our customers and to make sure that the economics work for them, the economics work for us. But the reality is as we go beyond, say, 60, 70, we will have to transition to HAMR. As we get to 80, 90, 100 terabytes days, at some point, the laws of physics will require us to transition to HAMR, but we want to do it in a way that makes economic sense, manages risk, gives our customers smooth transitions and equally important, makes economic sense for us as well. The benefit we have is we're able to do both whilst delivering the strong financial performance that Kris laid out.

We'll go to Aaron. And after that, we'll come to Eric over here. Eric.

Ambrish. Aaron Rakers with Wells Fargo. First question on the laser, the integration of the laser technology. I'm curious, and I apologize if I missed this. Can you help us appreciate when that inserts itself in the road map? Is that a point of gross margin leverage? Just any kind of further details on how we should think about that technology path as we go to the hammer. And then, Kris, for you, I just want to ask, I mean, first of all, congrats on the SanDisk ownership. It's $5.075 billion. I'm curious as we pivot now to this significant free cash flow generation that appears to be supported by this model is how do you actually structurally think about your capital structure? Are you wanting to build cash in the balance sheet? What's the appropriate level of cash to run the organization? I'm just trying to get a frame like how do you think about excess cash generation? Because you clearly are going to have a lot of capacity for capital return. I'm curious how you longer term think about that.

[indiscernible] You take the laser question?

Yes. Well, I was hoping that Kris would answer the laser question, too.

I can, but please go ahead.

Well, thank you. The laser technology, it is smaller, it is cheaper for us to produce. So that is going to be useful and accretive to the business. And we are starting a slow ramp in introducing it. So we -- it's not going to be a light switch transition because we want to be careful about when we transition that. So we'll start the transition around about the 48, 40 terabyte range and even a little bit before that.

Yes. In terms of capital structure, so assuming a successful monetization of the SanDisk shares, we will end up with $1.6 billion of debt on the balance sheet, which is the convert. At the appropriate time, I want to get rid of the convert, but still keep on or about $1.6 billion of debt on the balance sheet. And so yes, we have strong free cash flow. The intent is to return all that free cash flow back to the shareholders.

Great. We're going to go to Eric, and then we'll tee up Asiya after that over here. and then Wamsi right after that.

Awesome. I'll [indiscernible] Aaron and say, remember, you guys once had 23 million chairs of SanDisk.

Hindsight is 20,20 years.

Very true, very good.

No, thank you guys for all the content here. I just want to kind of break it down, which is we've gone through a lot of different configurations and platforms that you're introducing. They all have 10 -- 11 platters on them. Your competitor is coming out with HAMR with 10 platters. How do you remain price per terabyte, price per exabyte competitive? How do you continue to push down cost per terabyte when we have that kind of differential? What are you doing differently that allows you to remain competitive despite that kind of 1 extra platter per drive?

So maybe I'll just make one quick comment, and I'll leave it to Ahmed. I think when you saw his presentation, he had 2 very important points. One, is we're going to continue to focus on increasing rural density. -- right? So if you look at it, if we're going to deliver a 40-terabyte ePMR, as an example, that's on 11 pads, that's close to 4 terabytes per platter, right? When we get to 60, we'll introduce another plan. So that's 5 terabytes per platter. So we're increasing areal density, right? Similarly on HAMR, we said we will get up to 10 by 2029.

'28.

'28. Sorry, he's even ahead of me, right? So if you talk about what the rest of the industry has been saying, they're saying we're going to get up to 10 terabytes per platter. So we're equal or potentially time line-wise, going to be ahead of them in areal density. Now what we're doing is to increase capacity drives beyond aerial density. So we're going to be at parity or even a hit on a density per platter. But we have that ability because some of the innovative work that the teams have been doing, the laser technology to -- within the same drive to increase the number of platters, right? So that's how you get to potentially 140. So we feel actually from a drive economic standpoint, actually, our dollar per terabyte is going to be even more competitive going forward.

Okay. Helpful. And then maybe just a quick follow-up on going back, whatever it is, 12 months ago to the last Analyst Day, I think we were setting a floor for op margins and gross margins at 24% and 38%. I know we're kind of dreaming the dream now, which is exactly what we are all asking for. But if we do think about the other side of that, like where do we think about the potential floor in margins? Is it any different than a year ago? Or has that changed as well?

No. So the financial model that I put out there, as I said, it's a target model. So we still have some time to go and some work to do to get to the targets. But I have confidence that once we hit those targets over the next 3 to 5 years, we will be able to continue to operate the business at or above those targets.

We'll come to Asiya and then after that, Wamsi.

Asiya Merchant, Citigroup and thank you for all the content. That was great. Just one for Kris, and if I can, one for Irving as well. Kris, when you talk about stable pricing, I know right now, it's a great environment. Just walk us through why stable pricing makes sense beyond maybe the next few quarters where you have great visibility, if there is a down cycle, why do you still think stable pricing could probably prevail? And then 1 for Irving. Irving, on earnings call, you also talk about quantum computing. I didn't get to hear anything about it. Maybe it's just the time frame here that we're talking about. Just walk us through that innovation that you've talked about? And how does that fit into the broader road map.

Yes. So as it relates to pricing, for me, pricing is fully tied to how much value do we deliver to our customers, right? It has nothing to do with tightness in the supply chain or strength in the cycle or weakness in the cycle. It's how much value do we provide to our customers. And moving to higher capacity drives with better aerial density with better performance is what our customer wants. It's what our customers need and delivers a tremendous amount of value. right? That's why we are going to remain disciplined in terms of pricing, no matter what we are in the cycle. And that's why I have high confidence in this stable pricing environment.

Yes. Maybe I'll just add on to that. I think I've been in regular communication with our customers, one of the big ones just 2 weeks ago. I mean what they really want from us is predictability in pricing. It's very hard for them to be designing their data center architectures 2, 3 years, 5 years when you have the volatility that we are seeing in some of the storage tiers, right? And so what we're really focusing is on continuing to deliver value to them. And as Chris said, be able to share that value so we can deliver that stable pricing. Obviously, in the near term, we're seeing mid- to high single digits, but in the long-term model, a stable pricing environment. In relation to your second question on quantum and we didn't want to distract from all the exciting things. We have to stay on the drive itself. And obviously, as I mentioned, we hope to have regular Innovation Day, we'll keep you posted on what we're doing. But the reason I mentioned it because we are not building a business just for today. We're also incubating new growth vectors for the company for tomorrow. And that's why I took a moment to highlight the rich core capabilities and IP that we have. And if you look out what's the next probably tech growth driver beyond AI, quantum represents a huge opportunity going forward. And our magnetics capability, our magnetics junction technology capability, the nano fabrication technology by which we build our drives positions us very well to deliver cost economical qubits to support quantum computing going forward. And that's kind of why we made the strategic investment into collabs, not because it's a financial investment, but we're also a key technology partner to them and to be able to bring quantum computing economically at scale, just like we have done for the hard drive industry.

Great. And while you get ready for a question, I want to widen my horizon and see who's in the back because I've been sticking with the front ventures, but we'll go with Wamsi and...

Wamsi Mohan, Bank of America. I appreciate you guys doing this, and Kris love your comment on no ceiling to numbers. That's definitely encouraging here. I guess the 2 questions I have are, one is you noted smooth transition across recording technologies. And it looks like relative to last year, your ePMR road map is significantly different. I think last year, you said ePMR might end at 36% though that we're saying 60-plus, so very different. How do you that impacts the adoption of HAMR at your customers, just given the fact that so far, you've seen tremendous success with ePMR, and that might be an easier transition at higher capacities. So do you think it impacts the transition to HAMR from a WD perspective? So that's my first question. And second question is, there was a lot of innovation you shared here in terms of performance, improving performance in terms of power, in terms of buyouts. So just curious how you think about this could expand the TAM for Western Digital? And does that -- when this comes around, does it accelerate your growth rate even further?

Maybe Irving, you take that?

Both Question?

Both of questions.

So the -- when we talk to our customers, one of the things that's really very clear about it is they really don't like the sub transitions. And they want to have that smoother ramp in terms of equivalent capacity so they can choose when to ramp the capacity points for themselves. And that's really the genesis of why we pushed the ePMR technology further. We don't think it's going to decelerate HAMR adoption because customers understand to get to the beyond 60 terabytes, the 80 to 100, they really need to adopt HAMR, but they want to be sure of the quality and the reliability of this new technology, new recording technology that hasn't been in the data centers for 2, 3, 5 years. So they get comfortable with it. So they appreciate us creating that road map for them. And since it's manufactured on the same lines, we're not -- we've created a fungible capacity from that perspective. So we feel that it's the right approach for the customers with certainly the feedback we've heard from all the customers is they appreciate us the thoughtful approach that we're taking to the transition. So they will transition at their own time. There's a deadline, but there is a transition.

Yes. I guess in terms of the performance features, Wamsi, that you're referring to, obviously, we anticipate the take-up rate within the existing fleet of drives that we are shipping to customers on the high bandwidth drives say 20% drives would want that -- customers would want that in their fleets, right? And then obviously, the energy-efficient drives that actually opens up a new TAM for us because that actually is an unfilled need between hard drives and archival storage TS. Obviously, all these new capabilities will be reflected in pricing that's above and beyond what we deliver for pure capacity today.

Great. We'll go with Steve Fox over there. And then...

Thanks for all the great information. really an eye-opener for someone who's followed this industry for many years. One question, it seems like maybe it's an older question, but thinking about your areal density curve, it looks like it's going to be a lot faster over the next 3 years than you're talking about for bit growth. And you just mentioned new TAMs, et cetera. So can you sort of talk about -- and I recognize you're not going to be 100% at 10 terabytes per platter in 3 years. But can you sort of talk about how that you manage that sort of additional supply through this areal density and where else it could go?

So increasing the areal density, the acceleration of the areal density that we're seeing, it's really the focus of our engineers on the media recipes, how we design the media recipes and how we increase the -- change the head design. So we're taking further advantage of technology we've had in our drives for some time. We're just being a lot more bullish about what they can do, and that's how we get the higher densities that we're looking for right now.

But I guess I'm wondering, it compares to like a 25% bit growth CAGR and you're increasing aerial density by 2.5x over like 3 years. So how does -- how do we equate those 2 numbers together?

So we will continue to innovate as fast as we can and Ahmed has lined out the timing of that -- of course, on top of that, you have to lay an adoption curve at the customers. And the combination of all of that for us, we believe we will be able to supply in line with the nearline growth of mid-20s that we expect over the next 3 to 5 years.

We're going to go to call Tom O'Malley.

Tom O'Malley, Barclays. Thank you guys for doing this. Appreciate it. Not much to pick at here. Just 2 questions on the technology side. You spent a little time talking about the bottleneck of SATA for flash. Can you talk about industry improvements in memory bandwidth and if you see that getting better over the next couple of years and if that may help flash providers? And then second, you talked about a common API for flash and hard disk drives. A big gating factor for more flash use in the past has been the difficulty with moving the software over. As you guys integrate that, is that going to hurt you in customers being more readily able to move back and forth between flash and HDDs?

Improvements in -- so improvements in memory interfaces is just going to accelerate the pace with which data moves around. So that's just going to require more and more data to be transferred in and out of storage. So that's why we feel our bandwidth drives help us really meet some of that demand. So we see that trend is going in parallel with each other. And I think that's an important thing for us to have delivered to our customers. On your second question, which kind of -- will the API hurt us versus help us? We feel that those customers that have already started on flash, we want to meet them where they are. So we don't want to make an abrupt transition for them. We want to make a smooth transition for them as well. So by offering the same API and making the transition on the same media, they get the same performance capabilities. And then when they're ready, they can take advantage of the hard drive economics without disrupting their business. And I think that's an important transition. I don't think it will hurt us going the other way because we're starting with hard drives, you're going to like the economics, you're going to like the performance. There will be a small amount of workloads that may benefit from flash, but being customer-centric is the right thing to do for the customer.

Yes. If I may add, I think it's ultimately down to the workloads. And specifically, what we're looking at in the platform with those open APIs is to really focus on the Neo clouds where they're starting from a flash first perspective to really open up the HDD TAM that we don't really actively participate today. As they start to grow and the amount of the storage requirements increase, the economics will have -- require them to move into that direction.

We go right next to Tom.

Ananda Baruah, Loop Capital. With the road map for aerial density that you provided, which is super impressive, is there a useful way to think about mitigation of the supply-demand gap that's in place today? Is there a time frame that you think supply/demand can start to normalize. It sounds like, regardless, you guys have your paradigm on economics and value add that you have. So it sounds like that won't change based on supply/demand sort of equilibrium, but any context there, given that your aerial density road map seems like it's going to move pretty quickly over the next couple of years?

Yes. I mean, as we know, the supply environment is very strong and the demand side of the house is trying to catch up. Obviously, from a road map standpoint and from a production standpoint, there's limited opportunity in what we can do for calendar year '26. But as we get -- as you see the road map as we're able to ramp up as customers, again, as Chris mentioned, depending on the adoption cycle, as we move to the latter part of '27, '28, we anticipate that gap to narrow. But again, something that we've seen is the demand for storage continues to grow at a rapid rate. So even the mid-20s, who knows what it's going to be going forward.

Can we come to the front here, please?

[indiscernible] on for Karl Ackerman at BNP Paribas. So I have 2 questions. First to Ahmed about the high bandwidth drive, the idea of dual actuator drives have existed for years, but never really took off. Why is that? And why do you believe it can be successful today? And I have a follow-up.

I think as I said earlier, the -- these ideas have been around for a while. But typically, the way they were implemented required a customers to change their interfaces, the software, the hardware, and they typically cost more money and more power. That's been the history of trying to introduce these technologies. What we've done in our designs is really paid attention to keeping the customer experience the same. So we took all the complexity away from the customer and kept it inside the drive. And that's a testament to our engineering capabilities and the way that we're able to work through the drive in the small form factor we have, but keep the customer experience the same. That's what's different about these. So I've seen many of these ideas as a customer come to me over the years. And typically, it suffered from poor experience, poor power or it's more expensive. And in this case, we solved for those problems very quickly based on the history of technologies we've been incubating for quite some time.

Yes. I hope you see the big change in our focus as a company. We talked about a year ago being really focused on our customer. And everything you probably have about a customer close to 100 times over the last 2 hours, and everything they are doing starts with the customer at the center and having Ahmed and more and more of our talent that comes from the hyperscale environment really gives us good insight into what we need to be doing from our customers. It's not a technology-first view. It's a customer see view that technology enables the outcome that they want.

Sorry, I have a follow-up. So it's -- so just an overarching question. Just long term, look at where we are in the cycle right now. Demand is through the roof and the supply is constrained. The industry is very consolidated. So I feel like it's hard to apply any of our previous experience of the historical cycles on to this one. So how do you think this cycle would unwind? What would make you -- maybe like anything make you worry about like in 3 to 5 years, anything would change? Or are you all very well at night? I know no one has a crystal ball, but any of your long-term perspective would be very helpful.

Well, we'll let you guys predict the cycle, right? We don't do that. You got some experts at it. I think our focus is on staying close to our customers. The fact that our Three of our top 5 customers have entered into long-term agreements with us to extend 1 and 2, all the way up to calendar '22 to '27. As Kris mentioned, we're having active discussions with the rest for '28, '29 and some of them for even 30. That visibility gives us the confidence of where things need to go. And the fact that we are not doing this business with high CapEx unit capacity focus. We can toggle technology if we need to meet exabyte supply and demand balance.

Mehdi Hosseini, Susquehanna. Two follow-ups, one for Ahmed. Should I assume that most of the drives installed today and over the next couple of years are going to be on a SaaS bus internet infrastructure?

I know most of the drives that exist today are on SATA interfaces. So all the hyperscalers use SATA interfaces, they're sufficient for their capabilities and they have done for the last 10 years.

Is that going to be sufficient, especially as for inferencing and assuming that inferencing some is done in the cloud and some on the edge. How would that change the SaaS or SATA requirement?

We don't see the -- the customers have been really good at building the software layer, the objects layers [indiscernible] system layer such that they can aggregate the performance for many thousands of drives into serving those workloads. But as those workload how are they looking for that more performance from us. so that they can serve even more capacity and more performance to their end users. And so the interfaces and the design of the boxes will evolve to meet the performance needs that we have in the future.

Okay. And just on free cash flow question. Should I assume that the capital intensity will remain in the same range?

Yes. Absolutely. So the CapEx intensity is 4% to 6% to revenue and all the innovation that Ahmed has talked about it, especially because it's even recording technology agnostic will not require a step-up in CapEx.

By the way, I guess, if we were trying to figure out the downside is we have to figure out when is the next flood hitting Malaysia. God forbid.

So you used the 4 or 5 questions for the next several earnings calls as did Amit. But we're going to go over there to Matt.

Matthew Schaeffler, Investment Strategies Fund. This -- the amount of innovation sort of belies this question. But how do we know we're spending enough on R&D?

I think the results show that we have been very frugal about how we get to market. We test the ideas, the way that makes sense to us. We incubate them. We test them and only develop the ideas that are really resonating for our customers' experience, take them forward. So there's a lot more ideas than what we are looking at behind the scenes. It's just we do it in a very responsible and very frugal way.

Yes. Maybe I'll just add on to that, and Chris wants to add as well. We have definitely not styled R&D at all, right? And even a year ago at the Investor Day, we said very clearly, we would return 100% of excess free cash flow to our shareholders. And that's after the investments that we make into R&D. So Again, we are building a business not only for delivering our core drive business for today, we're also making investments into incubations for the future. These new growth vectors are something we are and will continue to make investments in going forward, both R&D investments and also financial investments into whether it's startups or M&A that we think is necessary because our innovation framework has 3 pillars to it. We build internally, we partner, right? We co-innovate with our partners, and we also have a buy model of it. So that will not change going forward. Kris?

Yes. And so again, we're not starving the company. We are focused on accelerating the pace of innovation. I will allow him to spend more R&D dollars provided he does it in the most effective, most efficient way and there is a strong return on investment. And I'll stop it there.

We have time for one more question. We're going to go to C.J. over there.

C.J. Muse with Cantor Fitzgerald. Two questions. First one, I want to push you a little bit on gross margin. You're just a couple of bars away, I think, from 50% if you keep pricing stable and you maintain that 10% cost down. So curious, is there something that's occurring going forward in the transitions that's reducing either your cost down or yields not going to impact things as well. We'd love to learn a little bit more on that. And then second question would be probably a question you haven't received an ever, which would be cannibalization going the other way with NAND pricing moving the way it is, I use talking with customers and starting to see demand perhaps pick up that had traded away over to SSDs. Thanks so much.

Yes. So I'll take the gross margin question. So you think about it the right way. We are making good progress at improving gross margins. We are getting closer to the 50% and 50-plus gross margins. Obviously, we have a technology transition in front of us. But we've always stated, and I'm happy to repeat it today that if and when we transition to HAMR, this will be neutral to accretive to the gross margins.

Yes. And C.J., to your question, look, I think what you see from the innovation that we shared today from a capability standpoint, from a performance standpoint, we are reinventing the hard drive to make it much more competitive, much more suited for the AI workloads for today. At a minimum, it's definitely going to preserve that 80% of bikes that stored in the hard drive. Do we think there's opportunity for us to expand on that given pricing? Again, it's highly volatile environment, we'll see. But at a minimum, I think it really gives us the confidence that we will continue to maintain the 80% share with some upside opportunity to grow it over time.

Great. Thank you. So this -- we come to the conclusion of our first session, but to paraphrase, Ahmed, what's next? We're not stopping here. We're going to break for lunch. Lunch is a floor down. And simultaneously, we'll have the demo room open. So as I said earlier, please avail of this opportunity and meet some of our brightest folks back there.

I would really encourage you to see demos because it's not slight way. You're going to see the 40-terabyte drive. You're going to see the dual actually the dual pivot and you're going to see the high bandwidth drive and as well as the HAMR drive.

Thank you again.