Robert Blair – Vice President-Investor Relations Stephen Milligan – President and Chief Executive Officer Olivier Leonetti – Chief Financial Officer & Executive Vice President.

Keith Bachman – Bank of Montreal Aaron Rakers – Stifel Rich Kugele – Needham and Company James Kisner – Jeffries Amit Daryanani – RBC Capital markets Joe Yu – Citigroup Sherri Scribner – Deutsche Bank Jayson Noland – Robert W. Baird Mehdi Hosseini – SIG Nehal Chokshi – Maxim Group..

Good afternoon and thank you for standing by. Welcome to Western Digital’s third quarter results for fiscal year 2015. Presently all participants are in a listen-only mode. [Operator Instructions] As a reminder, this call is being recorded. Now I will turn the call over to Mr. Bob Blair. Sir, you may begin..

Thank you, I want to mention as we begin that we’ll be making forward-looking statements in our comments and in response to your questions concerning, among others, our position and opportunities in the growth of data and the storage ecosystem, the growth areas in storage, our management of short-term market dynamics, our focus on long-term value creation, our capital location, exit by shipments, macro economic conditions, optimization of our infrastructure, [indiscernible] restriction of MOFCOM, our ability to meet any unexpected increase in our products, demand outlook and our financial performance including our financial results expectations for the June quarter.

These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainties that could cause actual results to differ materially including those listed in our quarterly report on Form 10 Q filed with the SEC on January 10th, 2015.

We undertake no obligation to update our forward-looking statements to reflect new information or events. In addition, references will be made during this call to non-GAAP financial measures.

Reconciliations of the differences between the historical non-GAAP measures we provide during this call to the comparable GAAP financial measures are included in the quarterly fact sheet posted in the Investor Relations section of our website.

The non-GAAP forward-looking guidance we provide during this call excludes amortization of intangibles related to the ago convictions of HGST, sTec, VeloBit and Virident data.

Because we currently can’t fully quantify future amounts for those excluded items we are unable to provide guidance for or a reconciliation to the most directly comparable GAAP financial measures. The impact of these excluded items may cause the estimated non-GAAP financial measures to differ materially from the comparable GAAP financial measures.

We ask that participants today limit their comments to a single question and one follow-up question if they have one. I also want to note that the copies of remarks from today’s call will be available investor section of on the Western Digital’s website immediately following the conclusion of this call.

I’ll turn the call over to President and Chief Executive Officer Stephen Milligan..

Good afternoon and thank you for joining us. After my opening remarks, Olivier Leonetti will provide additional commentary on our March quarter performance and our outlook for the June quarter. For the third fiscal quarter we reported revenues of $3.5 billion, non-GAAP gross margins of 31.1% and diluted earnings per share of $1.87.

I am satisfied with our execution and results in light of the PC demand challenges what were largely driven by weak macroeconomic conditions. We delivered a solidly profitable quarter with continued strong cash generation, improved average selling price, and healthy gross margins.

Overall, our storage shipments for the March quarter were 61exo of bytes up 14% year-over-year. We continue to carefully balance the management of short-term market dynamics with a strong focus on long-term value creation. This is reflected in our balanced approach to capital location.

Fiscal year-to-date we returned $1.1 billion to our shareholders and share repurchases and dividends, while continuing to invest in high-growth market opportunities. We continue to make strong progress on several strategic growth initiatives.

Our enterprise SSD business was accretive for the quarter and grew revenues by 67% year-over-year to $224 million. We also launched our new ultrastar MPME solutions in the enterprise space addressing the industry transition to standards-based PCIE solutions.

We surpassed 1 million helium hard drive deployments and are now ramping our new 8 terabyte helium PMR sealed drives. We shipped our first active archive system, a new category of high value-added archival storage product addressing a market of approximately $15 billion.

We completed the acquisition of Amplidata, a key building block of our vertical innovation strategy for active archive systems. We expanded our line of purpose-built drives for the fast-growing surveillance video recording space, and we launched four new models of high-performance NAS systems for the SMB space.

These initiatives provide revenue expansion opportunities for our company as we leverage our capabilities and resources in the rapidly changing storage ecosystem. Turning to our outlook, we continue to see growth in exabyte shipments during calendar 2015 and beyond.

However, we anticipate that global macroeconomic headwinds will persist in the short-term, further impacting PC sales. Given this we are cautious with regards to our near-term outlook. We believe this is prudent in the current environment and consistent with our focus on long-term value creation.

That being said, we are fully prepared to meet any upside in demand that may occur as we progress through the June quarter. We are optimistic that the demand environment will improve in the second half of the year. We will continue to optimize our infrastructure and related investments to the current demand profile.

That being said, our ability to respond to changing market dynamics is affected by the MOFCOM hold separate restriction. This is one of the central arguments that I continue to make in our regular interactions with MOFCOM.

Lifting the hold separate restriction would be beneficial to consumers and our customers by promoting innovation and enhancing the competitive environment. Olivier will now provide a summary of our March quarter performance and outlook for the June quarter..

Thank you, Steve. Our revenue for the March quarter was $3.5 billion. We ship a total of 54.5 million hard drives at the average selling price of $61. Our non-GAAP gross margin was 30.1% and operating expenses totaled $591 million. Tax expense for the March quarter was $28 million or 7% of pre-tax income.

On a non-GAAP basis, net income was $441 million or $1.87 per share. Turning to the balance sheet, in the March quarter we generated $684 million in cash from operations and our free cash flow totaled $534 million. Our CapEx totaled $150 million, or 4% of revenue. We repurchased 2.2 million shares for $240 million.

We also declared a dividend in the amount of $0.50 per share. We closed Q3 with total cash and cash equivalents of $4.8 billion of which approximately $880 million was held in the U.S. I will now provide our guidance for the June quarter. We expect revenue to be in the range of $3.3 billion to $3.4 billion.

Excluding the amortization of intangibles, gross margin percentage to be around the midpoint of our business model of 27% to 32%. Operating expenses of approximately $590 million. Accordingly, we estimate non-GAAP earnings per share of between $1.50 and $1.60 for the June quarter. Operator, we’re now ready to open the call for questions..

Ladies and gentlemen, we will now begin the question-and-answer portion of today’s call. [Operator instructions] One moment, please, for the first question. The first question comes from Keith Bachman of Bank of Montreal. Your line is open..

Hi, guys. My first question, if you could just review your perspective on the TAM for us in terms of how you see that progressing in the June quarter relative to 125. And any other comments, you said you were optimistic on the second half of the year then how do you foresee that TAM unfolding? And then I’ll ask my follow-up, please..

Yeah, so Keith, let me give a little bit of color on the demand environment. So you’re right in terms of fiscal Q3. We think that -- we haven’t seen Toshiba’s numbers published as of yet, but we think that the TAM for fiscal Q3 was about 125 million units.

Coming into the quarter, we would have expected the TAM to be something in the range of 135, right?.

That’s right..

The weakness that we saw during the quarter was entirely attributable to weakness in the PC market, largely driven by weakness from a broader global macroeconomic perspective.

As I indicated in my prepared remarks, we expect that those headwinds from a global macroeconomic perspective are going to persist going into the second quarter, again, affecting PC sales. And we think that the TAM will be something in around the 120 million a unit range..

Okay..

Now, one other point to indicate, from an enterprise demand perspective, whether that be enterprise demand for traditional customers or for cloud-related customers, demand there continues to be healthy. And came in pretty much along our expectations, both from an industry perspective and as well as from a company perspective.

And then going into the second half of the year, we are optimistic that the demand environment will improve, primarily due to a few things. One, we do expect that PC sales will pick up or we’re optimistic in that regard. We’ll begin to see a seasonal uptick relating to gaming units.

And then we’ll also see a seasonal uptick from a demand perspective in terms of things like our branded business, those more consumer-oriented segments..

Right, right..

Coupled with continued strength in terms of the enterprise market..

Okay. Great. Well, let me ask my follow-up, then, if I could, Stephen. Your employment levels in Q3 FY12 post-deal were a little over 106,000. The information sheet you put out this afternoon said your employment levels were about 81,000 total world head count.

How is it you’ve been able to take head count down so meaningfully over that period? And if you could just reiterate the incremental -- if, in fact, you’re granted MOFCOM relief -- the incremental cost reductions you see once relief, or if relief, is granted? Thank you..

Yeah, keep in mind that most of our head count from a total head count perspective is concentrated in our factories..

Right..

We have worked that head count level down over time primarily through attrition..

Okay..

And so, you know, not replacing workers that decide to move on for further employment. And if we go to the question on MOFCOM, what we have said, and we continue to say is that we expect that from an operating expense perspective, that we would realize approximately $100 million of OpEx savings a quarter.

We have not quantified the savings that we would anticipate on the cost line item, but we have indicated that we would expect that to be meaningful..

Okay, thanks, guys, I would cede the floor..

Thank you..

The next question comes from Aaron Rakers from Stifel. Your line is open..

Yeah, thanks for taking the question, I do have a follow-up as well. First looking at the outlook, when we look at the midpoint of your gross margin guidance, and also in the context of your expectation of enterprise remaining relatively healthy, I’m just trying to bridge the expectation of a decline in gross margin down into the 29.5% range.

What’s the underlying drivers of that? And why wouldn’t mix shift towards enterprise offset some of the weakness we’re seeing in the PCs and actually be a positive on gross margin?.

So let me take this one. The margin decline in the quarter is going to be mainly attributed to absorption impact. That’s the main driver. And as Steve has indicated we expect the margin to pick up in the second half of the calendar year at the back of, a bounce back of the PC market and also some increased demand in the enterprise segment..

Okay. And then as a follow-up and related to the enterprise business, it looks like you guys were down a bit more so relative to your closest competitor which I think was flat sequentially.

Can you talk about the competitive landscape, whether or not you’ve seen any kind of changes in pricing in the enterprise market or any reasons why maybe you might have underperformed your competitor in that space?.

Yeah, so one of the things to keep in mind in terms of, well, one overall share and in particular enterprises share, things are going to -- share is going to shift a little bit quarter to quarter and particularly in the enterprise space, I hate to use the word lumpy because it tends to be a little bit overused but it tends to come in bigger chunks in terms of we can have a customer that we’re particularly strong with that may provide a little bit of incremental volume or the flip side could be true of our largest competitor and so share can move around a little bit more quarter-to-quarter from an enterprise perspective.

But the important thing to keep in mind, there’s a few important things to keep in mind. One is, is that we’re very comfortable with our product positioning in that space and also very comfortable with the positioning from a customer perspective.

And then the last comment that I will indicate is that we’ve also got to keep in mind that unit share is one indicator, but it is not the only indicator. You also have to look at revenue share as well as margin share. And in that regard, we’re particularly pleased with how we performed in the past quarter..

Okay. I will cede the floor as well..

Your next question comes from Rich Kugele with Needham and Company. Your line is open..

Thank you, good afternoon, gentlemen.

Just if you could talk a little bit more about the SSD business, strong growth there this quarter, and, Stephen, you had mentioned I think in previous calls that you expected during the first half of calendar 2013 particular growth maybe on the PCIe side in that business so could you elaborate what you’re seeing in SSDs and what that revenue is comprised of?.

Sure, Rich. Most of our revenue today is coming from our enterprise -- or the SaaS enterprise SSD offering that we have that we co developed with Intel. We continue to see strong receptivity to our product and good traction there.

As I had in my prepared remarks, we’ve recently announced our PCIe/MME offering and what we’re seeing in that space which we have been anticipating for a while is a move away from proprietary-based PCIe solutions to call it a standards-based NBME solution.

We’ll begin to see the impact of that from a revenue perspective as we move through the balance of 2015 from a calendar year perspective and so as of right now that is not meaningfully indicated, at least our revenue performance over the past quarter..

Would you expect the SSD business to remain profitable over the balance of calendar 2015? Or has that moved on now?.

Yes. And I’ll even go further than that, Rich, on that, I would expect that our profitability level will improve..

Excellent. OK. Thank you very much..

The next question comes from James Kisner with Jeffries. Your line is open..

Yes, thank you. So I guess one quick clarification here, you talked about MOFCOM again in your script and made another strong case for why you should be able to integrate.

Is there any update at all on the feedback you’re getting from MOFCOM right now?.

Sure. Let me provide a little bit of color on that. The -- so we continue, as I alluded to in the prepared remarks, we continue to have frequent communications with MOFCOM. That includes myself. So, you know, and members of the management team.

On the positive side, I am encouraged by the frequency of those communications and the substance of those communications. Where I am not pleased is with regards to the pace of decision-making or the transparency of that decision-making.

And so one of the things that in a constructive way we continue to push is to help us understand exactly what the decision-making process is going to be and the timeframe associated with that. So that is where the frustration is just the timing and the nature or process surrounding that decision-making..

Great, that’s helpful and just a follow-up. You guys have been seeing visibility with hyperscale is getting better.

Is that still the case? Do you anticipate you can still see a meaningful uptick in the back half, thank you?.

Relative to hyperscale demand, we feel comfortable about our visibility right now through the balance of calendar 2015. And, again, as I alluded to in our prepared remarks, we’re expecting to see strong petabyte growth particularly in the hyperscale accounts.

The one question which I had talked about on our earnings call last quarter is the question is how will that specifically impact our unit demand which is a function of the deployment of new capacity points as well as the acceptance of those new capacity points on behalf of our customers.

So, for example, as we deployed an eight-terabyte drive what will be the take rate on that by our customers and obviously if you ship an eight-terabyte you don’t knee a two or four terabytes. So the impact is the one that’s a little bit more variable.

But what we do feel very strongly about is continued growth in petabyte growth in hyperscale deployments..

Okay, thank you..

The next question comes from Amit Daryanani with RBC Capital markets, your line is open..

Thanks a lot. Good afternoon guys. I have a question and a follow-up as well. Stephen when I look at your OpEx numbers it appears the long-term target of 10% to 12% you guys have, you’re running at about 16.6% or so right now. I think half of that is attributable to the MOFCOM number you talked about.

But I’m curious what do you think helps you realize the other half of the operating margin, is it leverage? Is it mixed? And how are you going to achieve the targets as you go forward beyond MOFCOM?.

You’re right, a large portion of that delta is due to lack of synergies from related to the whole separate situation. The other thing is, which is don’t mean this to sound as a cop out because it may sound like a copout but keep in mind that our OpEx model was set back in September of 2012.

One of the things that we need to do as the composition of our business changes and our investments change accordingly is a resetting of that model appropriate. I’m not suggesting that it is or it is not. It’s just something that we would have to contemplate.

But clearly, one of the things that we’re going to have to do as we move forward is look at ways at optimizing our expenditures and, you know, we talk about that in terms of managing short-term dynamics with longer term value creation.

And that becomes a bit more challenging as you see, as we did in this past quarter, a faster deceleration in the PC market largely driven by temporal factors..

Fair enough. And if I could just follow up, could you just touch on pride and dynamics, I think there was a big discussion last quarter but what are you seeing on the pricing side both on enterprise and the PC side and does that change as you get in the June quarter? Thank you..

We have not as I said, last time on our earnings call and it was very consistent. Pricing was within our expectations. We did not see anything that was outside of our expectations.

I will add one thing that as we look at this quarter from a demand perspective and anytime you do a demand forecast, the only thing that I know is that the demand may be higher or lower than what we expect.

Right now we are taking a cautious view because it feels like the risk factors associated with a lower demand environment are greater than it being a higher level of demand. And we believe that is prudent because we all know what happens question we happen to oversupply the industry..

Fair enough, thank you..

The next question comes from Joe Yu with Citigroup. Your line is open..

Thank you. Stephen, I want to ask about inventory levels, if I could. There has been some recent data points suggesting that distributors, especially in Europe and Asia, are excessively bringing down the level of hardware inventory due to currency.

What’s your view of inventory in the channel and that the ODMs relatively to normal levels?.

So a couple comments on that. Generally speaking, when we look at inventory levels, we think that they are within manageable ranges. That being said, one of the comments that you indicated, when we look at our distribution business, our distribution business was down pretty meaningfully in Europe.

And that is largely driven by the effect of a stronger U.S. dollar. And so we’re sensitive to that. We’ve tried to do, manage our business appropriately and manage those inventory levels. But as our customers in Europe are seeing a compression on their business driven by the U.S. dollar, that clearly puts pressure on our business as well..

Great, thank you. And as a follow-up, on the SSD business, I mean, it’s well-known that SanDisk is struggling, it’s one of your meaningful competitors on the SaaS-side due to qualification issues.

How much of the acceleration you’ve seen on your business on SSDs was attributed to share gains as opposed to the actual market accelerating?.

Well, we’ve had a pretty strong share position in the SaaS market for a while. I would not attribute our strong performance in this past quarter in any material way to any missteps on SanDisk’s part..

Great. Thank you..

The next question comes from Sherri Scribner from Deutsche Bank. Your line is open..

Hi, thanks. Stephen, I was hoping you could provide a little more detail on your view as to why the second half will improve from a PC perspective, and also maybe some commentary on the enterprise side.

Just wanted to know if you’re hearing anything from customers that suggest they also think demand will improve in the second half, or is that driven by Windows 10 or what that belief is based on. Thanks..

Yeah, so just, Sherri, not to mince words but we’re optimistic that the demand environment will improve. Obviously, we’ll have to continue to keep an eye on that. The reasons that we’re optimistic is we do believe that the PC market will improve or we’re optimistic that it will improve, I should clarify that.

We will see seasonal uptick in demand from the gaming segment. And we will continue to see or expect to continue to see strength in the broader enterprise market. I don’t know if I would characterize the enterprise -- Enterprise market has been consistent with our expectations.

I don’t know if I would say that I’m expecting an acceleration of that in the back half of the year. I think that we’re expecting a continued strong demand environment in the broader enterprise market, including hyperscale..

Great, thank you..

The next question comes from Jayson Noland with Robert Baird. Your line is open..

Okay, great. Thank you. I wanted to follow up on that last question regarding the potential impact of Windows 10. Intel suggested that there was some channel reduction in front of Win 10 and there’d be a channel fill in the back half.

Would that play a role in an optimistic view on the second half?.

Yes, Jayson. And we concur with that..

Okay, well, a follow-up question on active archives. If you could talk a little bit to the financial profile, competitive dynamics there, and any potential sales and marketing investment. Just curious to see your thoughts there on how that should play out here..

Yeah, so one of the things -- there’s really a few things to keep in mind, Jayson, on the active archive product. I mean, really we’re going after a bit of a Greenfield opportunity where we’re seeing data that today maybe isn’t stored because it’s not economical or it may be stored on other media, for example, tape and that sort of thing.

And so we’re sort of blazing some trails there from a market perspective and doing that in a way that we believe is synergistic with our existing customer base.

From a financial perspective I don’t believe that we have had presence, indicated specifically what that financial profile will look like other than to say that it would be accretive to our existing gross profit profile. And so far in terms of customer reaction we have shipped units and customer reaction so far has been very positive..

Thank you..

The next question comes from Mehdi Hosseini with SIG. Your line is open..

Thanks for taking my question.

And going back to your guide for 120 million TAM units for the June quarter, I’m just curious, what kind of a consumer pieces you have built in and are you expecting units to be up, flat, or down in June compared to the March quarter?.

We would expect the decline business to keep declining, putting a number behind that would be a bit difficult. Probably less precipitous to what we have observed in the March quarter but some level of decline..

That’s fair. So similar to Intel, if the month of June turned out to be better than earlier in the quarter, you could see some upside and you could see upside to the TAM units.

Fair?.

That’s correct. And that’s why we indicated again in my prepared remarks that if demand ends up being better than we expected we’ll be there to meet it..

Got it. And then one -- the other question I have is regarding the enterprise. I’m kind of surprised, I haven’t seen any acceleration growth in overall server investment in advance of the operating system expiration and there are two coming up.

Is this something that you think has already played out or is yet to play out or is not going to have much of an impact on the hardware procurement?.

We haven’t really seen that one way or the other so I don’t think it’s had much impact. If we look at demand for storage products or storage components in server-based systems, it’s been pretty steady. So not a real, big increase one way or the other or decrease so I don’t think it’s having much of an impact..

Got it, Thank you..

The next question comes from Nehal Chokshi from Maxim Group. Your line is open..

Thank you. So the exabyte data gives us the ability to look at price per terabyte which was down a healthy 80% year-over-year on effectively flat gross margins. So this implies that cost productions are in line with the price per terabyte reductions and that’s very good.

Can you help tease out how much is due to mix shift in your line versus the inherent like for like price declines you’re seeing right now. And I will have a follow-up..

Yeah, most of it, more and a lion’s share of that is growth in its mix-up is most of that..

It is indeed mostly mix-up..

Absolutely..

Now, the advance storage consortium which you guys are a part of recently released a ten year road map showing for a 10x increase aerial density.

And I understand there’s going to be an increased unit cost to get there due to hammer as well as bit pattern media but I would think this still implies a seven x bit price decline over the same timeframe or, basically, a 22% price per bit decline significantly faster than your current trend and potentially faster and further than what the nanoFLASH camera can accomplish do you have any pushback on that assertion there?.

Well, honestly that’s a lot of data to sort of throw out straightaway. It would require a little bit further analysis. But we continue to believe that from a competitive positioning standpoint we will remain, you know, particularly in the enterprise space, we will remain cost competitive in terms of any other solution.

So generally speaking I would say, yes, I agree with your assertion..

My assertion is likely a lot more aggressive than what Seagate or I believe you guys have intimated in the past. And so that’s what I’m checking in on basically..

All right. Thank you for your question..

Thank you..

Thank you, again, for joining us today. In closing I want to thank all of our employees and suppliers for their commitment and outstanding execution and our customers for their continued business. Thank you so much..

That concludes today’s conference. Thank you for participating. You may disconnect at this time..