Western Digital First Quarter of FY23 Financial Results and Analyst Call

October 27, 2022

WD doesn’t have a DRAM business, and they sell hard drives in addition to NAND and SSDs, so I read their releases for insight into the NAND market.

Earnings Presentation

  • NAND bit shipments decreased 10% sequentially (prior three quarters were down 6%, up 14% and up 13%). In the last year, NAND bit shipments are up a total of 9%.
  • Like-for-like ASPs decreased 17% QoQ (was up slightly, down 2% and down 3% in the prior three quarters)
  • Here are the last eight quarterly changes in NAND ASPs (like-for-like, from most recent to oldest): down 17%, up slightly, down 2%, down 3%, flat, up 4%, flat, down 6%. Putting this all together, like-for-like NAND prices for WD are down approximately 22.5% in the two years. In total, this is a pricing environment that is expansionary to gross margin for NAND makers as they target at least 15% annual declines in cost per bit. The last quarter price drop was so steep, it accounted for most of the drop since late 2020.
  • Blended NAND ASPs decreased 22% QoQ (up 2% and down 1% in the previous two quarters). Besides the steep price drop, WD’s mix got worse as well.
  • The company’s NAND gross margin decreased 900 bps from the prior quarter. This follows four quarters of almost flat gross margins for NAND (between 36% and 37%).

Revenue trends for the whole company, by end market:

  • Cloud down 13% sequentially and 18% YoY
  • Client down 25% sequentially and 34% YoY
  • Consumer down 15% sequentially and 30% YoY

Conference Call

Quotes are in italics

As we closely monitor the macro environment, we are encouraged to see retail flash and channel demand leveling out and orders from PC customers stabilizing, a sign that consumer-led inventory correction is abating. This is a positive data point for the NAND market, and probably for DRAM as well. PC led into this downcycle and finding the bottom is the next step toward recovery.

For the December quarter, we expect flash shipments to increase sequentially, led by seasonal strength in retail and mobile. With the abrupt change in market conditions, we are acting decisively to adjust our supply trajectory to align with demand.

I would like to discuss the business outlook for the balance of this fiscal year and the actions we are taking to align our execution plan with the changes in business environment. In flash, we expect shipments to increase sequentially in the fiscal second quarter and the balance of the fiscal year 2023 as the market stabilizes.

For the fiscal year 2023, we are reducing our gross capital expenditures to $2.7 billion. We are also aiming to reduce our cash capital expenditure by 20% versus our prior expectation. The main drivers of our lower capital expenditures are primarily the push out of BiCS6 transition in flash and reduced investments in hard drive manufacturing. I hope to get more information on the reduction in NAND CapEx later in the call.

Gross margin for the whole company is expected to be between 20% and 22% in the second fiscal quarter of 2023. This compares to 26.7% in fiscal Q1 of 2023.

Question and Answer

While Kioxia (WD’s JV with Toshiba to manufacture NAND) announced they are going to cut production by up to 30%, WD is not taking any major “underutilization actions” in their fab capacity, for now.

The company plans to grow their NAND bit supply low-to-mid 20s percentage in 2023

In let’s call it, the June time frame, we saw the PC OEMs really start adjusting their inventory very aggressively. We talked about that last quarter. And we’ve seen that play out during the quarter now in a number of different fronts. And then just within the last month or two, we’ve started to see the big data center operators do the same thing, really sharply adjust their inventory. And obviously, that’s factored into our guide. So we’ve seen this kind of rolling change as it goes through one market to the next. If you look at the other side of it, where are they at in that process, consumer market, we’re seeing relatively predictable behavior, it’s not like it’s at a great point, but it’s not falling the way it was, our ability to predict where it’s going to be week over week and month over month have increased. And so we’ve got more confidence we understand where that market is at and how it’s going to play out going forward. In the PC market and see Q4, we’re actually going to see some sequential growth in units of client SSD, not a huge amount, but it’s sequential growth. Again, we talked about a very, very sharp inventory correction. So we’re starting to see – we’re getting to the point there where the inventory correction last quarter was quite severe. I mean, when customers going down to less than 10% of their usual demand. Now we see things coming back and stabilizing a little bit. So I don’t want to leave you with the impression that things are back up and back up and to the right, but they’re stabilizing a bit, and we’re starting to see some signs that we’re getting more predictable behavior and then that we can then grow out at this point. Obviously, the data center, the big U.S. hyperscalers were just kind of going into that. This is a long quote but worth including in its entirety because of its importance. The PC OEMs were the first to reduce their NAND consumption and the reduction was severe, as much as 90%, beginning back in June. That market is now stabilizing. It is not improving yet but is close to that phase. Datacenter demand is now weakening, also for inventory correction. If the timing is similar to PC, it will be March or April when that segment finds the bottom.

They saw inventory grow to 128 days in Q3 and expect it grow again in Q4, by another $100M to $200M


This was the quarter that the NAND market turned sharply lower. After being flat for almost two years, NAND ASPs declined 17% sequentially on a like-for-like basis. Bit shipments declined 10% from last quarter, losing almost all the growth from the past year. I think WD has lost some market share in NAND during 2022. This isn’t surprising given the comments both Samsung and Hynix have been making about planning their NAND bit growth to be above demand. The consumer markets, following a free-fall in demand, seem to be stabilizing. The datacenter market is starting to soften now. All of this is inventory reduction, which is what always happens when end-demand for memory weakens. Customers respond to falling memory prices by sharply reducing purchases and chewing through inventory. If datacenter timing is similar to consumer, that market will find bottom in four or five months from now, April or May of next year. WD plans to reduce capital expenditures in 2023 by 20% compared to prior guidance, leading to NAND bit growth in the low-to-mid 20% range in 2023.

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