WDC

Western Digital Corporation (WDC)

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Western Digital Corp. (WDC)

F1Q2011 Earnings Call

October 19, 2010 5:00 PM ET

Executives

Bob Blair – Investor Relations

John Coyne – President and CEO

Tim Leyden – Chief Operating Officer

Wolfgang Nickl – Chief Financial Officer

Analysts

Rich Kugele – Needham & Company

Aaron Rakers – Stifel Nicolaus

Sherri Scribner – Deutsche Bank

Keith Bachman – Bank of Montreal

Ben Reitzes – Barclays Capital

Nehal Chokshi – Technology Insights Research

Rob Cihra – Caris & Company

Mark Miller – Noble Financial

Kaushik Roy – Wedbush

Ananda Baruah – Brean Murray

Mark Moskowitz – J.P. Morgan

Presentation

Operator

Good afternoon and thank you for standing by. Welcome to Western Digital’s First Quarter Financial Results for fiscal year 2011. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this call is being recorded. Now, I will turn the call over to Mr. Bob Blair. You may begin.

Bob Blair

Thank you. I want to mention as we begin that we will be making forward-looking statements in our comments and in response to your questions concerning the role in growth of digital content, growth opportunities for storage companies and our responses there too, industry inventory, pricing and demand, our business model, our position in the industry, total available market for hard drives in the December quarter, our expected capital expenditures, depreciation and amortization and tax rate for fiscal 2011, our share repurchase plans, and our financial results, expectations for the December quarter, including revenue, expenses, tax rate, share count and earnings per share.

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 10-K filed with the SEC on August 13, 2010. We undertake no obligation to update our forward-looking statements to reflect new information or events and you should not assume later in the quarter that the comments we make today are still valid.

I also want to note that copies of remarks from today’s call will be available on the Investor section of Western Digital’s website immediately following the conclusion of this call.

I would now like to turn the call over to President and Chief Executive Officer of Western Digital, John Coyne.

John Coyne

Thank you, Bob. Good afternoon and thank you for joining us today. With me are Tim Leyden, recently named Chief Operating Officer; and Wolfgang Nickl, our newly appointed Chief Financial Officer. Although my titles of President and CEO are unchanged, my emphasis has shifted to how we can best leverage our resources to accelerate our growth in the years ahead.

As the new leader of all WD operations and keeper of our low cost model, Tim will discuss current industry dynamics and the company’s performance in the September quarter. While Wolfgang will report on our financial results and provide our outlook for the December quarter.

With the advantage of the deeply experienced dedicated and passionate team we are excited as we lead WD into its fifth decade. As we look out over the next 10 years, the role of digital content in our daily lives at home and in the workplace will become increasingly ubiquitous with the explosion of data and video rich applications creating huge amounts of digital content that need to be stored and managed.

This will be driven by both the traditional computing markets and by new or evolutionary platforms such as hand held devices, television and other home entertainment devices for the analog to digital conversion is in its infancy.

In addition to the continuing growth of traditional PC platforms, the growth of cloud computing, tablet computing and the proliferation of smartphones creates myriad opportunities for storage companies and traditional hard drive and emerging solid state drive markets.

We will shape the future of WD by sorting through all of these opportunities and acting decisively in our core business and in our business development efforts to continue delivering value to customers and shareholders. You have seen some early indications of one new strategic direction for WD into the movement of data and content around the home, with our WD TV Live HD Media Players, our WD My Book Live Network Storage Solutions and most recently our WD Livewire Powerline Network offering.

Going forward, we are looking for ways in which to pursue strategic growth initiatives such as these both organically and through acquisition.

Turning to the current hard drive industry environment, we are again reminded that this is a competitive industry of seasons and cycles. The management of supply and demand remains an imperfect science. The moderation and industry demand growth in the last two quarters came on the heels of an unprecedented four quarters of strong sequential growth coming out of the great recession.

As an industry we purely overshot the recent market demand and we’ve spent the last six months correcting for that. We believe this will prove to be an interlude to the resumption of the industries traditional cadence of growth over the last 10 years.

Having said this, it’s important to note that growth has not disappeared in the hard drive industry post-recession. Expected year-on-year volume growth and calendar year 2010 of 15% brings the five-year industry compound growth rate, which includes the recession of late 2008 to about 11%, while the average growth rate over the last 10 years has been 12.5%.

In the last two quarters, some competitors have made aggressive bids to recover market share. This is a scenario we have seen play out from time-to-time over the years in the drive industry. Our observation is that these are temporary skirmishes, which do not derail our fundamental long-term profitable growth story as we address these challenges with a tested business model we have developed and honed overtime.

Read the rest of this transcript for free on seekingalpha.com