Western Digital FQ2 2024 Results


NAND bit shipments decreased 2% sequentially (increased 26% last quarter). Like-for-like NAND ASPs increased 7% quarter-over-quarter (decreased 4% last quarter) while blended increased 10% (decreasing 10% last quarter.) The company is forecasting industry bit demand growth in NAND to be around the mid-teens percentage, similar to the growth rate in calendar 2023. Industry bit supply growth for the year will remain in the mid-single-digit percentage range. While NAND pricing has started to increase, profitability and cash generation remain well below the level to justify increasing capital investments. This is a signal that WD is in line with other memory producers in not trying to add wafer capacity to gain market share. The company anticipates rising ASPs to be the primary revenue growth driver throughout calendar 2024. NAND gross margin in the quarter was higher than expected at 7.9%. Underutilization charges in the quarter amounted to a 360-bps headwind to gross margin. Flash days of inventory are at a four-year low. When customers run out of inventory, with fab production growth forecasted to be almost flat in the year, there will be no NAND capacity slack in the system. The company is not forecasting to have any fab underutilization charges in FQ3, the current fiscal quarter. They reached their target supply and inventory goals faster than anticipated. The company expects to achieve mid-teens percent reduction in NAND cost during this fiscal year (FY2024). When asked about how long the upward move in NAND ASPs will last, they said “our current view is we see NAND undersupplied for quite some time in the market. … But we’ve got a long way to go before we’re going to get profitability levels where investment’s going to come back.” Adding this commentary together and assuming WD’s situation is similar to what is happening at the other NAND suppliers, customer inventories are the only thing between the NAND market and steep increases in pricing in calendar 2024. The company’s NAND inventory is at a four-year low, their production is well below demand growth, and they have no plans to invest in more capacity.

-S. Hughes (cyclical long MU)