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From: Elroy4/29/2019 10:16:58 PM
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Tidbits from WDC's conference call

Demand for flash-based products was slightly better than expectations; however, prices declined more than we anticipated.

We continue to make excellent progress toward commercializing our internally developed NVMe based platforms. I'm pleased to report the commencement of initial revenue shipments of our enterprise NVMe SSD and we are on track to accelerate the volume ramp of this product over the remainder of calendar 2019. We also commence shipments of our NVMe client SSDs based on 96-layer, 3D flash, BiCS4 technology. The manufacturing ramp and commercialization of BiCS4, which we believe is the industry's lowest cost technology is progressing well. In the second half of calendar 2019, BiCS4 will become our highest volume runner in terms of flash output.

In enterprise SSDs, NVMe product qualifications at hyperscale customers are progressing to plan. This product built on our internally developed controller and firmware, complements our other enterprise SSD solutions that are already shipping. Consistent with the platform approach we discussed last quarter, we expect to expand our enterprise SSD product portfolio throughout 2019 in a cost effective and predictable manner, including a version that incorporates BiCS4. In Client Devices, demand for hard drives for the PC market was slightly better than our expectations.

In client SSDs, our exabyte shipments more than doubled from a year ago quarter driven by strong price elasticity. Additionally, we've begun shipping our mainstream client SSD products based on BiCS4 technology. In client solutions, we are very pleased with the success of our external SSDs sold through retail and we have continued to expand our presence in this category over the last several quarters.

Based on recent industry announcements, we estimate flash industry supply growth to be slightly more than 30% in calendar 2019, somewhat lower from our prior forecast.

In Flash, our product portfolio in 2019 has been significantly enhanced with the expansion of our NVMe product line for both client and enterprise SSDs and we continue to have brand leadership in retail.

Flash revenue was $1.6 billion with a sequential bit decline of 5% and a sequential average selling price per gigabyte decline of 23%. The sequential decline in Flash revenue was primarily due to price, seasonality, and weaker sales of embedded mobile products.

Non-GAAP gross margin in the quarter was 25.3%, below our guidance of approximately 28% due to a $110 million charge or 300 basis point impact incurred for lower of cost or market LCM reserves. Flash non-GAAP gross margin was 21% due to the rate of price productions and the aforementioned $110 million LCM charge, primarily related to an inventory write down of multi-chip packages that contain DRAM.

Looking into the June quarter, we expect of flash and HDD inventory to decline on a sequential basis.

we'll continue to see a downdraft in terms of flash gross margins in the current quarter as we see cost -- price pressures continue.

we expect our top line to improve at a meaningful rate as we see demand pick up, capacity enterprise as well as seasonal pickup in demand from both a flash and from a hard drive perspective.

Let me provide a little bit more color on that, in the sense that we continue to expect that our hard drive margins will improve as we move through the balance of the calendar year. Flash becomes the wildcard, now I said this last call and I'm going to say it again because it really is the same answer. What are we assuming? We're assuming that we're going to continue to see pressure in terms of our flash gross margins as we move through the balance of the calendar year. And the reason that we're doing that principally is that, we want to plan for the worst and if you want to call it hope for the best. Now, we don't know exactly what's going to happen to Flash gross margins because a lot of that is dependent upon other factors that are outside of our control. What do our competitors do, production levels, demand levels, and all that. So, we don't know exactly how it's going to play out, but from our standpoint it is safest to assume that we're going to continue to see our Flash gross margins remain under some degree of pressure as we move through the calendar year, albeit maybe at a moderating level from a pricing perspective as we move through to the back half of the year.
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