Western Digital FQ3 2024 Results


NAND bit shipments decreased 15% sequentially (decreased 2% last quarter and increased 26% two quarters ago). Like-for-like NAND ASPs increased 18% quarter-over-quarter (increased 7% and decreased 4% the last two quarters) while blended increased 18% (increased 10% and decreasing 10% the last two quarters.) Flash gross margin in the quarter was 27.4% (last four quarters, most recent to oldest, were 7.9%, (10.3%), (11.9%), and (5.0%). Industry supply and demand dynamics “continue to improve” and the company said they “will remain disciplined around our capital spending.” The increase in NAND gross margin was higher than expected, having increased 1950 bps sequentially. For the overall NAND market in calendar 2024, the company sees bit demand growth in the mid-to-high teens percent with production bit growth of about 8%. That is for the industry overall. NAND cost reductions are expected to be in the mid-teens percentage down year-on-year. WD management said last quarter that their profitability is far from the levels needed to add capacity. In this quarter’s call, management said they need more confidence than they have today to consider bringing more wafer capacity into the market. In their prepared remarks, the company said “it’s crucial to acknowledge the importance of maintaining capital discipline and only reinvesting capital back into the business once profitability improves further, and we see sustained demand.” Overall, this quarter is typical of what is reported early in an upturn. It is the second consecutive quarter of increasing prices and of positive gross margin. The ASP increase was not as large (18%) as Samsung, Hynix and Micron all reported (>30%), which is surprising, because WD’s flash gross margin was higher than these three competitors. This is probably the result of differences in product mix and cost allocation. The bottom of the NAND market was three quarters ago, which was the period between July and September of 2023, inclusive, about in-line with the nadir of the non-HBM DRAM market. NAND ASPs were in a much deeper hole than DRAM, so it will be longer before NAND capacity gets added. WD’s executives were clear about this in the call, saying they are some distance away from considering raising capacity investment. These results are what Micron investors hoped to see from WD: a clearly strengthening market, forecasted undersupply for the rest of calendar 2024, and no plans for capacity expansion.

-Smooth Hughes (cyclical long MU)