Good afternoon, and thank you for standing by. Welcome to Western Digital's fiscal Q3 2022 conference call. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, if you would like to ask a question, you may press star one on your phone. As a reminder, this call is being recorded. Now I will turn the call over to Mr. Peter Andrew, Vice President, Financial Planning and Analysis and Investor Relations. You may begin. Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer, and Wissam Jabre, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements, including product portfolio expectations, business plans and performance, demand and market trends, and financial outlook based on management's current assumptions and expectations, and as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10-K filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially. We will also make references to non-GAAP financial measures today. Reconciliations between the non-GAAP and comparable GAAP financial measures are included in the press release and other materials that are being posted in the investor relations section of our website. With that, I will now turn the call over to David for introductory remarks. Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our fiscal 2022 Q3 results. We delivered excellent performance in the quarter, with revenue of $4.4 billion and non-GAAP gross margin of 31.7%, both of which are at the higher end of our updated guidance ranges we provided in early March. Additionally, we reported non-GAAP earnings per share of $1.65, which exceeded our revised guidance. I am proud of the team's execution as we navigated dynamic geopolitical and macroeconomic environment as well as ongoing supply challenges. On top of that, we successfully managed through a fab contamination event that is now fully resolved. Overall, the Western Digital team did an amazing job of meeting our customers' growing and evolving storage needs. This has all been made possible by the operational and technological improvements we have made over the last couple of years that enable us to unlock the true earnings power of the Western Digital model. Looking ahead, we are optimistic about the business outlook for calendar year 2022. We believe the secular demand for storage and our new product ramps in HDD and flash, combined with the seasonally stronger H2 of the calendar year, will drive growth across our end markets. With 40% of the world's data stored on Western Digital products, our innovation powers the global technology ecosystem from consumer devices to the edge to the heart of the cloud. Our vision is to create breakthrough innovation inspired by the convergence of human potential and digital transformation that enables the world to actualize its aspirations. At Western Digital, we have established an admirable position in the large and growing storage markets. Our proven ability to develop a diversified portfolio of industry-leading products, coupled with our broad routes to market, puts Western Digital in a unique position to capitalize on the promising growth opportunities ahead of us. I'll now turn to an update on our HDD and flash businesses. Our HDD revenue was as forecast and in line with typical March quarter seasonality, led by growth in capacity enterprise drives. Robust demand in the cloud end market for our 18- and 20-terabyte drives generated a nearly 40% increase in nearline revenue from the same period last year. Of note, our 20-terabyte drive exabyte shipments approached high single-digit percentage of total capacity enterprise shipments. During the quarter, qualification of OptiNAND-based hard drives progressed as planned across multiple cloud and OEM customers. Combining OptiNAND with our SMR leadership uniquely positions Western Digital in the marketplace. Putting it all together, we have positioned our innovations in OptiNAND and SMR to drive business results in our capacity enterprise business for the rest of this calendar year and into the future. Our largest cloud customers are aligned with this strategy and are accelerating adoption of SMR products within data centers later this year. We are laser-focused on bringing new cutting-edge features and functions to our products for cloud storage. We will provide more details around these exciting innovations at our Investor Day on May 10th. Turning to flash, our overall business was impacted by our ability to ship product due to the fab excursion. In light of this event, coupled with the supply chain challenges facing all companies across the industry, I would like to thank our customers and the Western Digital teams for working together diligently to mitigate the impact of supply chain disruptions. From a product perspective, client SSD demand improved in the quarter as our PC OEM customers successfully worked through their own supply chain issues. Gaming is another growth market for us, where we continue to have success with exabyte shipment nearly doubling year-over-year. We have a leading position in the marketplace with our brands, including WD Black, SanDisk, and SanDisk Professional, recognized globally for cutting-edge innovation, performance, and quality. An example, this is our WD Black SN770 SSD product, which leverages our cutting edge BiCS5 technology and in-house DRAM-less controller architecture. This SSD product is one of the fastest and best drives available in the market. We have received excellent reviews from tech journalists, which is a great testament to the company's strength in both our BiCS technology leadership and our ability to develop innovative solutions, enabling our customers to unlock the potential of their PCs. Qualifications of BiCS5-based products for client and consumer end markets were largely completed, and we are making great progress in qualifying our next-generation BiCS5 enterprise SSD products. We expect these products to drive revenue growth and mix improvements into the future. Lastly, BiCS5 represented nearly half of the flash revenue, up from 41% in the previous quarter. Let me now offer a few observations on the demand environment. In cloud, we see continued strength in calendar year 2022. The increase in cloud capital investment for data center build-outs is expected to propel growth for our HDD and flash products in this growing end market. In client, PC end demand growth has been solid for the last two years, and we are starting to see some normalization in the PC market. We expect PC unit demand to remain significantly above pre-pandemic levels, with the return to site trend driving a mix shift towards commercial and enterprise PCs with richer client SSD content versus consumer-oriented PCs. In mobile, we have a strong position in 5G phones, and we see demand for the latest 5G flagship phones remaining solid, with NAND content doubling from prior generation smartphones. In other emerging applications, demand from gaming and VR/AR devices remains robust. Industry analysts expect VR headset sales to grow at a 47% CAGR over the next couple of years. In consumer, we are experiencing short-term demand weakness outside the U.S. tied to the geopolitical events in Europe, as well as COVID-related lockdowns in China. However, we are confident in the strength of the business as we are entering a seasonally stronger H2 of the calendar year with a number of new innovative products. We feel good about the overall demand in calendar year 2022. We are continuing to navigate the macroeconomic and geopolitical factors I mentioned earlier. While these transitory issues are affecting both revenue and gross margin in the near term, we expect them to subside over time. We are confident that the growth and profitability opportunities in front of us have not changed. In closing, I want to acknowledge the hard work and unrelenting spirit of our employees that goes into creating our game-changing products. In particular, I want to thank our employees in China for their efforts to work through all the supply chain and logistics challenges during the lockdowns. Before turning the call over to Wissam, I wanted to make a quick announcement that Western Digital and the IRS have reached a tentative agreement to resolve a long-running tax matter covering the fiscal years 2008 through 2015. With offsetting tax benefits, we expect the ultimate net amount will be in the range of $500 million-$600 million. While this settlement will result in a previously unforecasted cash payment in fiscal year 2023, it does highlight the work that I and the rest of the Western Digital team have undertaken in the last two years to instill strong financial discipline and provide greater financial flexibility upon which we are building a foundation for future growth for the company. Wissam will go into more detail in a minute. Let me now turn the call over to Wissam, who will discuss our fiscal Q3 results and provide a more detailed outlook for the fiscal Q4. Wissam? Thanks, David, and good afternoon, everyone. As David mentioned, overall results for the fiscal Q3 were better than our revised expectations. Despite the incredibly dynamic macro environment that David discussed, our results reflected the resilience of our business and our ability to continually deliver solid financial performance. In addition, we completed a debt restructuring with our lenders in the March quarter, marking continued success in paying down debt and providing increased financial flexibility and stability. Total revenue for the quarter was $4.4 billion, down 9% sequentially and up 6% year-over-year. Non-GAAP earnings per share was $1.65, above the revised guidance range of $1.30-$1.60 we provided in early March. We are pleased to have delivered such strong results in the face of the challenging environment. Turning to our end markets, cloud represented 40% of total revenue at $1.8 billion, down 8% sequentially and up 25% from a year ago. Within cloud, Western Digital's leadership position at the 18-terabyte capacity point and ramp of 20-terabyte drives drove a nearly 40% year-over-year increase in nearline revenue. This growth was partially offset by lower enterprise SSD and smart video hard drive revenues. The client end market represented 40% of total revenue at $1.7 billion, down 7% sequentially and 2% year-over-year. The sequential decrease was primarily due to typical seasonality in both flash for mobile and client hard drives. On a year-over-year basis, growth in flash was offset by decline in hard drive. Lastly, consumer represented 20% of revenue at $0.9 billion, down 17% sequentially and 8% year-over-year. On a sequential basis, the decline was primarily due to lower retail flash shipments. The year-over-year decrease was roughly evenly split between hard drive and flash products. Turning now to revenue by segment. We reported flash revenue of $2.2 billion, down 14% sequentially and up 3% year-over-year. On a blended basis, flash ASPs were down 1% sequentially. On a like-for-like basis, flash ASPs were down 2% sequentially. Flash bit shipments decreased 14% sequentially and increased 9% year-over-year. During the quarter, we recognized the majority of the bit supply impact caused by the fab contamination. Hard drive revenue was $2.1 billion, down 3% sequentially and up 9% year-over-year. Sequentially, total hard drive exabyte shipments increased 1% while the average price per hard drive increased by 4% to $101. On a year-over-year basis, total hard drive exabyte shipments and average price per hard drive increased by 20% and 22% respectively. As we move to costs and expenses, my comments will be related to non-GAAP results unless stated otherwise. In the March quarter, total fab contamination charges of $203 million were excluded from our non-GAAP results. Gross margin for the Q3 was 31.7%, down 190 basis points sequentially and up 400 basis points year-over-year, including approximately $59 million in COVID-related expenses. Our flash gross margin was 35.6%, down 50 basis points sequentially and up 560 basis points year-over-year. Our hard drive gross margin was 27.7%, down 290 basis points sequentially and up 270 basis points year-over-year. Hard drive gross margin included COVID-related impact of approximately $51 million or 240 basis points. Operating expenses of $740 million were below our guidance range as we tightly managed our expenses. Operating income was $650 million, representing a 26% decrease from the prior quarter and a 58% increase year-over-year. Earnings per share was $1.65, up from $1.02 in the year ago quarter. Operating cash flow for the Q3 was $398 million, and free cash flow was $148 million. Cash and capital expenditures, which include the purchase of property, plant and equipment and activity related to our flash joint ventures on our cash flow statement, represented a cash outflow of $250 million. We remain disciplined in investing in manufacturing capacity and expect gross CapEx for the current fiscal year to be around $2.9 billion. We expect cash CapEx to be around $1.3 billion as we actively manage our overall spending. In the fiscal Q3, we made a discretionary debt repayment of $150 million. Our gross debt outstanding was $7.25 billion at the end of the fiscal quarter. We ended the quarter with $2.51 billion of total cash and cash equivalents. Our trailing twelve-month adjusted EBITDA at the end of the Q3, as defined in our credit agreement, was $5 billion, resulting in a gross leverage ratio of 1.4 times compared to 2.6 times a year ago. As a reminder, our credit agreement includes $1 billion in depreciation add back associated with the Flash Ventures. This is not reflected in our cash flow statement. Please refer to our earnings presentation on the investor relations website for further details. Before discussing our outlook, I wanted to provide some more details on the settlement with the IRS that David mentioned. As previously disclosed in our quarterly SEC filings, the company has been in a significant long-running situation with the IRS regarding taxes owed for fiscal years 2008 through 2015. As you can see in our GAAP statements, we took a tax charge in the fiscal Q3, primarily based on our latest assessment of the situation. In the last few days, we reached a tentative agreement to settle the transfer pricing issues in dispute. The actual amount Western Digital will have to pay, and exact timing of the payments have not been determined yet. However, we currently expect to make a cash payment in the range of $600 million-$700 million sometime in the H1 of fiscal 2023. Please note that this is the cash-out number. We currently expect that the ultimate net amount will be in the range of $500 million-$600 million after accounting for certain offsetting tax benefits expected to be recouped over the next three years. Finally, in the Q4, we will make a GAAP-only adjustment to the reserve associated with this settlement. You will find additional details in our 10-Q, which we plan to file next week. I'll now provide our view of both hard drive and flash businesses for the fiscal Q4. As we indicated on our last earnings call, we continue to expect hard drive revenue to increase, driven by growth in nearline hard drives. We also expect flash revenue to increase sequentially in the fourth fiscal quarter as our flash supply improves. For our fiscal Q4, our non-GAAP guidance is as follows. We expect revenue to be in the range of $4.5 billion-$4.7 billion, with sequential revenue growth for both hard drive and flash businesses. We expect gross margin to be between 31%-33%. We expect operating expenses to be between $770 million and $790 million. Interest and other expenses are expected to be approximately $70 million. Our tax rate is expected to be approximately 11% in the Q4. We expect earnings per share to be between $1.60 and $1.90 in the Q4, assuming approximately 317 million fully diluted shares outstanding. I'll now turn the call back over to David. Thanks, Wissam. Looking ahead, we remain optimistic about our business outlook for the calendar year as customer demand across our end markets continues to be generally strong. Despite the supply chain challenges and macroeconomic factors we discussed earlier, it is evident that we have the right foundation for long-term growth, the right technology portfolio in place to meet evolving customer needs, and the broad routes to market necessary to scale our business. Over the last couple of years, we have planned and executed significant changes to improve our focus, sharpen execution, and set strategic goals to place Western Digital in a position of greater strength, and I am excited that we are witnessing the positive impacts of those changes. Before I wrap up, I want to remind everyone we have Investor Day coming up on May 10th, and I look forward to seeing you all there. Let's start the Q&A. Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. Due to time restraints, we ask that you please limit yourself to one question. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question will come from C.J. Muse with Evercore. Please go ahead. Hey, good afternoon. Thank you for taking the question. I guess the question relates to your June quarter outlook, and would love to hear how you're thinking about any kind of ongoing implications to both the NAND contamination issue, what kind of impact that might have on your bit availability. And then secondly, in terms of the China lockdown, the impact on your HDD media side, and whether that's pushing out any shipments beyond the June quarter. Hey, C.J., thanks for the question. Yeah, on the flash side. First of all, as we said, the flash contamination issue is behind us in the fab. We expect bit growth next quarter. You know, we won't be all the way back, but we'll, we expect to accelerate from where we were this quarter. As far as the situation in Penang and China, we did have that facility shut down for a couple weeks at the end of last quarter. We've mostly recovered that as far as being able to meet demand for this quarter. I would say that, you know, as a general statement, it's. I think it's very difficult for everybody to meet what true demand is right now in the market. Between component shortages and the situation in China, it makes it really tough. I think we were able to navigate through the situation quite well. You know, frankly, the team there did a fantastic job and has kind of recovered. There was some incremental costs, as we saw in the HDD margin line that we didn't expect. All in all, I think we navigated through the situation fairly well. For the coming quarter, yeah, we're still dealing with the situation in China, but we think we'll be able to navigate through. Although it is very dynamic, you know, we factored in all the risks into the guide, and we're comfortable with where the number's at. Wissam, anything to add? Not much, David. I think you've covered it well. Thank you, guys. Appreciate it. Sure. Thank you. Our next question will come from Aaron Rakers with Wells Fargo. Please go ahead. Yeah. Thanks for taking the question. I'll stick to one as well. I just kind of thinking about the gross margin guidance into this next quarter. I think it was 31%-33%. I was curious if you could help kind of unpack the variables, you know, maybe give us some color on how you're thinking about the flash gross margin relative to the hard disk drive gross margin. And I guess within hard disk drives, how much COVID-related expenses are you still embedding? You know, just any of the variables you can help us appreciate on both those two segments. I'll start on it, and Wissam can add. On the drive business, you know, last quarter, we talked about the 200-300 basis point impact that we were expecting. I think we took a little more of that in this quarter than we had expected. Some of that was some costs we didn't expect, like I just talked about in Shenzhen. I think I said Penang earlier, but Shenzhen. In that business looking forward, I think we see it as pretty much we've pretty much hit the bottom. We basically see it flat going forward. In the flash business, we expect some acceleration of gross margin given the supply-demand balance situation. Wissam, anything to add to that? Yeah, David. Just maybe to follow on the comments or Aaron's question with respect to COVID, where we see the COVID costs going into next quarter are expected to be a little bit less than what we've experienced in the fiscal Q3. Thank you. Thanks, Aaron. Thank you. Our next question will come from Joe Moore with Morgan Stanley. Please go ahead. Great. Thank you. Just following up on the contamination issue, is the 7 exabyte number that you guys talked about still the right kind of number to think about the lost production, and how does that split across the March and June quarters? Hey, Joe. Yeah, that's still the right number. I mean, the team will always work in kind of an evolving situation to see what they can do with the material that we had to take out. 7, I don't think it'll be super material to the number. 7 is good place to work from. We haven't split it up over the quarters. The majority of it we took in the previous quarter. Okay. Your joint venture partner, might wanna speak for them, but, like, just in terms of assessing the industry situation, would have lost proportionally the same amount? Yeah. I'm not gonna speak for them. We have joint manufacturing facilities for sure. Great. Thank you. Thanks, Joe. Thank you. Our next question will come from Patrick Ho with Stifel. Please go ahead. Hey, Patrick, are you there? Hey, Sherry, why don't we skip over and try to get Patrick back in? Okay. Our next question will go to Tom O'Malley with Barclays. Please go ahead. Good afternoon, guys. Thanks for taking my question. You're seeing a really Sure. You're seeing a really strong trend in the HDD pricing side. Is that entirely related to the mix more towards nearline, or are you seeing any underlying trends in other parts of the business as well? Anything helpful there will be really good. Thank you. I'll put a much larger frame on it, Tom. I think what's happening, and we see it show up in a number of ways, and there's a lot of COVID implications and cost in it too, but I think we're just seeing the industry change from a world where there was always capacity enterprise drives available. You know, hard drives were available. It was about, you know, putting as many as you could in places where you could fill up factories and get good absorption and not have to pay incremental costs for that. You know, that's kind of decline of the client era and the rise of the cloud era. We're pretty much through that. We're in the last legs of it, and I just think you're seeing a lot of industry dynamics change. You know, you're seeing long-term agreements come in much more. You know, something that last year was kind of a new concept that we were working through. Now it's becoming much more mainstream with our big customers just to give us visibility to making investments in this business. You know, essentially, we don't have a lot of capacity anymore to shift from client to enterprise and the cloud, and we're having to invest in that, and that's causing the whole industry to shift the way it thinks about this technology, in my point of view. I think it starts with we're still driving a strong TCO model for our customers. That's where it all starts. Every generation of technology, we're able to bring down the TCO for our customers. In the past, I think as we did that, the reward for our side of it was more volume to soak up that capacity. Well, that's not the case anymore. Now we have to invest in new volume, so the industry has to change. We're bringing a lot of TCO value, and I think you're seeing the industry move to providing more visibility, thinking about value-based pricing more, and how do we move that value equation in a way that we can continue to drive the TCO down and drive you know, better pricing environment. That's the big picture. Of course, you know, there's a lot of costs in the system right now, and inflation input costs are going up, and we're working through pricing, if we can mitigate parts of that. That's happening as well. Helpful. If I could just sneak another quick one in. On the flash side, obviously you had a lot of disruptions during the quarter. It looks like the implied cost was relatively flat. When you're looking into the out quarter, you're obviously saying gross margins are up. You should see some pricing tailwinds given the industry. Tom, maybe any sort of color on the cost versus pricing impact in the out quarter? I know you don't like to get specific, but obviously given the situation, anything would be helpful here to kind of model the moving pieces. Thank you. Yeah. Wissam, you can take that. Go ahead. Yeah, of course. Yes, Tom. We expect that, you know, our long-term to continue to reach our long-term target of cost reduction, which is 15% year-over-year. We did see a bit of headwind in the current quarter, but it's really impacted by a few factors that we expect will dissipate in the next couple of quarters. We saw, for instance, we continue to ramp our BiCS5 technology, as well as, just like everybody, we're seeing some inflationary pressure, as well as the startup of our Yokkaichi Fab Seven. We still expect for this fiscal year 2022 to be at least 15% year-over-year in terms of cost reduction. As I started with, we do expect to continue to meet that target going forward. Very helpful. Thank you. You're welcome. Thanks, Tom. Thank you. Our next question will go to Timothy Arcuri with UBS. Please go ahead. Hi. Thanks a lot. This is Jason on for Tim. Could you please provide a color on the trajectory of your HDD gross margins through the H2 of this year? I'm asking because we're expecting some, you know, benefit that we'll get on the likely stronger pricing environment in the H2 versus H1. Thank you. Yeah, we do expect, as we talked about last quarter, we're pretty much in the same place, which is, we expected the decline we saw this quarter. We actually expected gross margin to be a little lower next quarter. Now we think that'll be flat. Then we expect that to improve in the H2 for a number of reasons, mix, input costs that are changing a bit, and also some pricing benefit. Yeah, we expect next quarter to be the low, and then we expect to improve from there. Thank you. Thank you. Our next question will come from Patrick Ho with Stifel. Please go ahead. Thank you very much. I apologize before. Dave, maybe if you could give a little bit of color. You gave some very encouraging commentary regarding the data center and cloud spending into the H2 of the year. One, are these because of the long-term agreements you're signing with customers? Maybe secondly, along with that question, how do you see the customer base in terms of this transition from 18 to 20? Is it a new set of customers, or are your 18 customers quickly transitioning over to 20 TB? Yeah. Let me unpack that a little bit, and thanks, Patrick. You know, it's largely the same customers that will move from 18 to 20. I mean, I think, as I said earlier, the TCO equation improves as you keep driving forward. That's a very important part of what we do. I mean, this is. You know, I talk about innovation a lot around here and the innovation we've driven around ePMR and now OptiNAND and SMR. You know, those are all things that we layer into our products and allow our customers, every time they move a generation forward, they get better TCO equations. There's reasons to keep moving forward. That's kind of the way that works a little bit. By the way, we'll come back and talk about SMR a little bit more. We're continuing to see more momentum towards SMR. That is the future of the cloud HDD business is SMR. All the big players are now moving down that path, which is a technology we've been investing in for quite some time. On your other question on. Look, the LTAs don't drive the spending, and the LTAs help smooth out the spending. I think the whole idea with the LTA is to give you know, we have a strong relationship with our big customers and to give better visibility, you know, two, three quarters out. I've talked about this a lot in the past. The business used to be, if I think back one year ago or two years ago when I came in the business, the business was just transacted quarter- to- quarter and even within the quarter. Clearly, given the investments we need to make to continue to drive investments in heads and media to fund, to fuel the exabyte growth, you know, we're gonna need more visibility than that. The LTAs have been, you know, adopted. We strike those with our big customers on multi-quarter time frames, and then, you know, we stick to them. That's been very good as far as smoothing out any ups and downs and builds on their side. You know, as far as the H2 environment, you know, our big cloud customers continue to tell us and signal a strong demand environment in the H2 of the year. You know, we'll be excited about driving to that with, starting with 18 and then transitioning to 20 as we move through the year. Thank you. Thank you. Our next question will come from Krish Sankar with Cowen. Please go ahead. Hey. Hello, guys. It's Eddie for Krish. Thanks for taking my question. For HDDs, when do you expect the crossover between 20 terabytes and 18 terabytes? And can you please tell us if you did see a slowdown in the VIA market for HDDs over the last quarter? Thank you. Yeah, that's. I would imagine the 20 crossover will be in the H2 of the year. I mean, we're deep into the 18s right now. I mean, 18 is probably 80% of the portfolio of what's shipping. So it's the sweet spot of the market. As we move through the year, we'll start to ramp 20. So towards the end of the year, early next year. We can circle back on a specific date, but that's the way we're thinking about it. The surveillance market, our smart video market, you know, that's been soft all year. You know, we continue to see that with the lockdowns in China. You know, we expect that once that ends, there'll be some snapback and some recovery of pushed out demand there. But right now, given the COVID situation, you know, I think that market's not gonna change until the COVID situation changes. If I can squeeze one in, is surveillance margin accretive? Is it margin? I don't think we break out at that level. I don't know. Wissam, do you have a comment on that or Peter? Yeah, actually, David, we don't break it down to that level of detail. All right. Great. Thank you. Thank you. Our next question will come from Sidney Ho with Deutsche Bank. Please go ahead. Thanks for taking my questions. A couple of short ones on the flash side. How are you thinking about your full year bit shipment growth for calendar 2022? I know you don't want to talk about quarter by quarter, but for the full year. The follow-up question is gross margin for flash. You talk about maybe up a little bit for next quarter. Are you actually expecting much price increase? How much is mix a factor? Maybe talk about, Wissam, you talk about the Yokkaichi startup cost. Can you kind of quantify what that number is? Thanks. All right. I'm gonna let Wissam handle the gross margin question. The bit growth, look, our bit growth will be down this year. We're not gonna put a number out there right now. Given the fab excursion, we'll be down this year, and then we'll make it up over the next year or so, year plus. It'll take a while to fully come back to our fair share of bits. Our strategy has been very consistent for a long time. We invest to maintain share. You know, you see us doing that, including recent fab announcements with Kioxia. Wissam, you wanna talk about gross margin a little bit and flash? Of course, David. Sydney, thanks for the question. When we think of the flash business, I think to address maybe the part of the question around the Yokkaichi startup cost, they're not very significant, and actually they're much lower than the K1 fab startup. We're talking about really a brownfield expansion here versus a greenfield expansion. To the part of your question with respect to our flash gross margin that's sort of embedded in the guidance, and of course, you know, mix always plays a part in any gross margin, whether it's actual or projected. as I said earlier, we're still expecting to meet that 15%+ year-on-year cost reduction for flash in the fiscal year 2022. I hope this helps. Thank you. Thank you. Our next question will come from Mehdi Hosseini with SIG. Please go ahead. Yes. Thanks for taking my question. Just as a follow-up to the previous question, how should I think about the impact of FX exchange rate on the flash gross margin? Thanks, Mehdi, for the question. I'll just talk about the FX in general. Our approach is we use a layered hedging approach, which means you know there's much more coverage and hedge on the shorter term versus the longer term. That smoothes out the impact of FX over time. The way also to think of it is any incurred cost within the quarter typically will not really impact the PNL until approximately 90-120 days later, given the manufacturing cycle times and lead time for delivery of product. Whatever we're seeing at least in the past short term in terms of currency fluctuations will not be that impactful to the numbers. What we're sort of expecting, actually, what we saw in this quarter and what we're anticipating for the fiscal Q4 is less than 1% impact on all of our cost of goods sold, not on that basically talks about all of the cost of goods sold, Mehdi, not only the flash portion. Okay. Can I now ask you a question? The FX was more like a clarification. Go for it, Mehdi. Okay. Just back to David. Given your LTAs, and you sound confident that the cloud demand is gonna sustain to the H2, how should I think about nearline exabyte growth prospect in calendar year 2022 versus 2021? Exabyte growth in 2022 versus 2021. I can get you, let me, I'm gonna look this up real quick. If I have it by. You know, look, I mean, Mehdi, if I look at it over, you know, we keep coming back to 35% growth in the exabytes in the cloud. You know, that's been a pretty consistent number. I'd have to go back and put it in. I tend to look at it more in fiscal years and calendar years, but I can follow up with you on a calendar year number. Okay. Thank you, and I look forward to meeting you at the Analyst Day. I look forward to it. It's gonna be fun. Thank you. Our next question will come from Nikolay Todorov with Longbow Research. Please go ahead. Yeah, thanks for the question, and good afternoon. David, you talked about SMR quite a bit on this call. Maybe can you unpack how should we think about the impact of SMR on mix, pricing, margins in HDD? Maybe can you touch on what kind of workloads are the cloud guys looking to deploy SMR initially? Well, I'll defer the workloads one till our Investor Day. We'll go into a little more detail there. Look, I think big picture, we see, you know, this last quarter, I think. Well, I know I said we had 2 big cloud titans that were working on SMR, and we expected significant shipments towards the end of the year. Within the quarter, we had another one and another one come to us about adopting SMR. I think that, you know, it's very clear to me that the capacity gains that can be achieved with SMR, you know, we've been investing in this technology for a long time, and this idea that you can get an extra 10% or more, and again, we'll talk about that next week or in a couple of weeks as well, is very attractive, especially given the size of the drives now and how big they are. You're talking big numbers, you know, multiple terabytes that are being added through the changes. Now, the thing that gives me a lot of conviction on this is because it requires, on the host side, you have to do some software work. You know, nobody wants to do software work if they can avoid it or if the return is not good enough. The fact that the big players are coming, and they're saying, "Look, we're gonna invest in this, and we're gonna pull SMR into our data centers," tells me that this is the next leg of growth in this industry. You know, again, we'll get to our Investor Day to talk about what it means on the portfolio, but I get back to just another way that allows us using innovation to drive a better TCO equation for our customers. When we can drive better TCO, then we can leverage that into a conversation about value-based pricing. That's exactly what we're doing, and that's it's exactly where the industry is going. Like I said, LTAs are a part of that, about getting more predictability. The fact that we can continue to drive down the cost of storage, continue to drive a better TCO with every generation of product, do that through innovation, that gives us opportunity to create margin and create value. Thank you. Our next question will come from Nam Kim with Arete Research. Please go ahead. Thank you for taking my question. How should we think about some of your hyperscaler moving into their own enterprise SSD build? Do you expect such DIY enterprise SSD to impact your business negatively or just have a limited impact? Any color would be great. Thank you. I think various, you know, of our customers have DIY projects. I think that's fine. They still, you know, first of all, I don't know if anybody does 100% that because everybody wants diversity in their supply chain. Even DIY provides this opportunity to provide raw NAND, so not just the full enterprise SSD. Like I said, even anybody that's doing DIY is also going to be buying enterprise SSDs as well for part of their footprint, the numbers here are getting so large that whichever way you play or both, it gives us the opportunity to play in both of those franchises, quite frankly, with our big customers providing enterprise SSDs and then providing NAND into their projects. I think it's a reflection of how important enterprise SSDs are to the future of a very modern cloud data center. It's extraordinarily important technology, and we're very happy to be involved with the biggest customers and qualified at the biggest customers with our technology. Thank you. Our next question will come from Jim Suva with Citigroup. Please go ahead. Thank you, and I look forward to seeing you all next month. Before that, it's great to see the contamination issue is, you know, kind of behind us, of course, working through that. With that being said, you know, the cost of all that, is that solely borne by Western Digital or does your supplier kind of remunerate you for that or make up for it in future pricing or some type of insurance? Most critically, what are you doing? Have you put in something to make sure such thing doesn't happen again? Yeah. I'll give some input, and Wissam can maybe provide more details if we have them. Look, we've the issue is fully behind us. The team has done a fantastic job of root causing it down to the very bones of what the issues are and then putting in place, obviously putting in place screens and other things to make sure it doesn't happen again, or if it does happen again, to make sure we catch it proactively. As far as the, you know, the costs are split by us and our JV partner. As far as the ability to recoup any of those, I mean, I think we'll look at that. You know, once we get fully past everything, we'll look and see if there's anything that'll happen there. Anything to add to that, Wissam? I think. No, David, I think you've covered it well. Thank you. Our next question will come from Steven Fox with Fox. Please go ahead. Hi. Good afternoon. Thanks for taking my question. I was wondering if you could just talk a little bit more about the hard disk drive pricing. As you mentioned, your ASPs were up 4% in the quarter. But can you talk a little bit about the like for like pricing currently and for the rest of the year, how you're approaching it maybe differently by, you know, the different segments, and whether it's being impacted by the sort of extended lead times you've talked about in terms of where you're maybe putting more bits than maybe you were a year ago? Thank you. I think, you know, like I said, I wanna repeat the same thing again. Pricing starts with value. We have to deliver value, and we're constantly innovating to deliver more value. But we're clearly working on pricing to see, you know, to defray some of the input costs and all the logistics costs COVID has impacted. That's going on across the portfolio. Then, you know, we're having conversations with our customers about the value we're providing with these next generation of drives, about, you know, what that value is and how do we move to a value-based price-based pricing model. I don't know if there's a whole lot more to say about it than that. I don't know. Wissam, anything from your perspective? No, not on this, David. Thank you. Thank you. Our next question will come from Christian Schwab with Craig-Hallum. Please go ahead. Great. I just have a quick question on disk drive gross margins. You know, given the positive impacts of mix and decreased input costs and increases value pricing, if we have a China COVID shutdown end, is there any reason why the disk drive business can't be operating at 30%+ growth and, you know, exiting calendar year? I'm sorry. You broke up when you said the number. Is there any reason that you would be exiting the calendar year with gross margins at 30%+ again? Yeah. I mean, so I think we broke those numbers out. Although Wissam, I think he's got the details. He had it in his remarks. I mean, if you just took all the COVID costs off of the business right now, I think we'd be above 30%, right, Wissam? Yes. That's very true, David. I mean, we did have in the quarter around 240 basis points related to the COVID costs. You know, we've talked about we've been slightly impacted, of course, by COVID lockdowns. You know, we continue to see some inflationary cost pressures short-term with supply chain disruptions. I mean, to your question, I wouldn't necessarily wanna talk about where the margins are gonna be in Q4, but I would say that we do expect the margins to be better from here in the H2 of the calendar year 2022. Yeah. I mean, we're not gonna commit to your number, but just as a general point, I mean, look, there's just been a lot of additional costs on the business. We've talked about it for many quarters now. Logistics costs, and now increased input costs that have really hit us this past quarter. You would think as the world comes out of the pandemic, I think, which is the major crux to your point, as this starts to unwind and logistics gets back to a steady state and some of the input costs get more reasonable, you know, we stop paying expedite fees for certain components and things like that because there's just a more smooth flowing supplier ecosystem, it will unburden a lot of costs on the business. I think this is masking somewhat, although not completely, a major fundamental structural change that's going on in the business, which I've talked about a lot, which is. You know, the HDD market is a growth market, and it's a growth market where we're gonna need to invest capital to build additional heads and media capacity. When that happens, I think the economic equation changes and we get, you know, the key thing in that kind of world is can you still innovate and can you still bring new things to the product that makes it more valuable to your customer? I think that is, you know, what we've really been focused on from ePMR to OptiNAND to SMR. We're just really focused on innovation, bring a better value proposition that'll be able to build a better product for our customers, and we'll get into that value-based pricing thing. If we get both of those going, and we can get the cost out because of the pandemic, I think we'll, you know, we feel very good about the business. Thank you. Our next question will come from Mark Miller with The Benchmark Company. Please go ahead. Thank you for the question. I'm just wondering in terms of mix, NAND mix, how is that progressing in terms of, mobile versus the other, segments you ship into? Are you seeing increasingly more shipments into mobile, and where do you expect that's going? You know, there's a couple dynamics to this. I think over the past couple of quarters, we've had a higher shift, higher mix towards mobile as we were ramping BiCS5. You know, we talked about it in the prepared remarks. We've gotten past our qualifications of BiCS5 in the consumer market and in our client SSD market, so we see an acceleration of mix into those on BiCS5. You know, there's a lot of hard work going on to qualify our enterprise SSDs on BiCS5, and as that happens throughout this year, you'll see an acceleration of that market as well into BiCS5. The reality is we have demand on enterprise SSD we can't meet because it's on BiCS4 right now. As we get that into BiCS5, you'll see the mix change, and you'll see the enterprise SSD mix accelerate through the H2 of the year, which will provide a tailwind to the business. We'll talk about this a little bit more at Investor Day as well to put one more plug in to see all of you on the 10th. Thank you. Our next question will come from Kevin Cassidy with Rosenblatt Securities. Please go ahead. Yeah, thanks for taking my question, and yes, looking forward to May 10th and May ninth too, right? Yeah, absolutely. Yeah, I just wonder if you could give us a little more details on the Fab 7 ramp. What's You know, you've mentioned brownfield expansion, and can I just understand a little better what that means? Is it you start off with only 20,000 wafers a month or any numbers like that you can give us? First of all, let me clarify the brownfield. I think what the point Wissam was making there was that K2 expenses will not be at the level of K1 because K1 was a greenfield, and K2 is a brownfield. Same situation with Y7, which ramping on in Yokkaichi, obviously, and obviously a brownfield launch there as well. I don't know, Wissam may have some information about how the expenses roll out. As far as how the wafers scale, look, we'll start ramping that, I think, on our newer nodes. Yeah, we'll have more to say about that when we start getting the tools in there and all of that. Wissam, anything to add? Just maybe to clarify that, thanks, David. To clarify my comment on brownfield versus greenfield was exactly, you know, just to really highlight that the costs aren't as high as we've seen in K1. They weren't really. They're not very significant. Of course, it's a bit of a headwind to the gross margin. Thank you. Speakers, I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Mr. David Goeckeler for any closing remarks. All right. Thanks, everyone. We appreciate you joining us. As we've said a couple times here, we look forward to. Hopefully, we'll see you on May ninth, as was pointed out for some new product launches. We'll have some exciting new technology coming out then. Then on the 10th, May 10th, May 9th and 10th. On the 10th, we'll have our Investor Day, which we've been looking forward to for quite some time. We will see you there. Thanks, everyone. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.