Good afternoon, and thank you for standing by. Welcome to Western Digital's Third Quarter Fiscal 2017 Conference Call. Presently, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. As a reminder, this call is being recorded. Now we'll turn the call over to Mr. Bob Blair. You may begin.

Good afternoon, everyone. This call will contain forward-looking statements within the meaning of the Federal securities laws, including statements concerning our expected future financial performance and our market positioning, expectations regarding growth opportunities, our financial and business strategies and execution, integration activities and achievement of synergy goals, demand in market trends, our product portfolio, product features, development efforts and expansion into new data storage markets, and our joint venture partnership and business ventures with Toshiba. 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 February 7, 2017. We undertake no obligation to update our forward-looking statements to reflect new information or events. Further, references will be made during this call to non-GAAP financial measures. Reconciliations of the differences between the non-GAAP measures we provide during this call to the comparable GAAP financial measures will be posted in the investor relations section of our website. We have not fully reconciled our non-GAAP financial measure guidance to the most directly comparable GAAP measures because material items that impact these measures are out of our control and/or cannot be reasonably predicted. Accordingly, a full reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort. In the question-and-answer part of today's call, we ask that you limit yourselves to one question to allow as many callers as possible to ask their question. Thank you in advance for that, and I now turn the call over to Chief Executive Officer Steve Milligan.

Good afternoon, and thank you for joining us. With me today are Mike Cordano, President and Chief Operating Officer; and Mark Long, Chief Financial Officer. After my opening remarks, Mike will provide a summary of recent business highlights, and Mark will cover the fiscal third quarter financials and wrap up with our guidance for the fiscal fourth quarter. We reported strong financial performance in the March quarter, enabled by excellent operational execution by our team and favorable trends across all of our end markets. We reported revenue of $4.6 billion, non-GAAP gross margin of 39% and non-GAAP earnings per share of $2.39. With three consecutive quarters of strong financial results following the completion of the SanDisk acquisition, we are seeing continued validation of our growth strategy and our ongoing transformation into a comprehensive provider of diversified storage products and technologies. We have constructed a powerful platform with the broadest set of products, enabling us to be a leader in the storage industry. Our transformation over the last several years provides us with the opportunity to not only compete in today's marketplace, but to be strongly positioned to grow and thrive into the future. And I would remind you that the results we are achieving today do not yet reflect the full impact of our targeted synergies from our HGST and SanDisk integrations. The healthy current demand environment underscores the unabated growth in data and its increasing value in our professional and personal lives. As the new Western Digital, we are enjoying increasingly strategic relationships with our customers as they contemplate pivotal technology and architectural transitions. Strengthening our ability to play a leading role in the storage industry, our team continues to execute very well on two key strategic priorities. The integration of HGST, SanDisk and WD, and the ramp of…

Thank you, Steve, and good afternoon, everyone. Our March quarter results reflect continued strong demand for our products and focused operational execution. Industry-wide demand for NAND flash remained very strong. And the industry-wide hard drive demand was stable, together contributing to the favorable environment for our overall business. Demand was healthy across all of our end markets and this helped mitigate typical seasonality. We made further progress in our ongoing conversion to the 3D NAND technology, and our helium hard drives achieved new milestones as well. In client devices, we saw strength for embedded products and for hard drives and surveillance applications, while traditional commute demand was softer as expected. Demand for our solid-state drives for client applications increased sequentially, reflecting expansion of attach rates of SSDs to PCs and the ongoing adoption of our client SSDs, enabling us to expand our market presence. We commenced shipments of our 64-layer, 3D NAND in client SSD form factor, and we expect to further expand the usage of this industry-leading technology across our product portfolio during the remainder of calendar 2017. In the mobile embedded category, we further deepened our OEM customer engagement through increased acceptance of our eMMC solutions, including our three-bit per-cell x3 offerings. Our design win pipeline expanded within the traditional mobile categories as well as in emerging growth areas such as auto, connected home and the Internet of Things. Turning to client solutions, our comprehensive portfolio of flash and HDD products performed strongly and it significantly mitigated typical seasonal revenue decline. The strong appeal of our WD, SanDisk and G-Technology brand continues, demonstrated by ongoing consumer preference for our products on a global basis. In data center devices and solutions, we saw sustained strength for enterprise class SSDs and a growing requirement from hyperscale customers for our 10-terabyte…

Thank you, Mike. I'm pleased with our financial performance in the March quarter. Our team executed well in a healthy market environment as we capitalized on our diversified product offerings, achieved cost targets and improved our liquidity position with continued strong cash flow generation. Our revenue for the March quarter was $4.6 billion, driven by strong performance in each of our end markets. Revenue in data center devices and solutions was $1.3 billion, client devices was $2.3 billion, and client solutions was $1 billion. Our revenue was only down 5% from our December quarter versus the typical decline of approximately 15% on a pro forma basis, which underscores our strong performance. Our data center business continues to be fueled largely by cloud-related storage demand. Our March quarter revenue for data center devices and solutions declined 2% year-over-year on a pro forma basis. We saw sustained strength in capacity enterprise hard drives and sequential growth for our enterprise SSDs, offset by a decline in performance enterprise hard drives. Client devices revenue for the March quarter increased 23% year-over-year on a pro forma basis, primarily driven by significant strength in embedded flash, surveillance HDD and client SSD. Client solutions revenue for the March quarter increased 6% year-over-year on a pro forma basis due to strong demand for removable and other flash-based products. Our non-GAAP gross margin was 39.3%, up 260 basis points quarter-over-quarter and up 650 basis points year-over-year on a pro forma basis. This gross margin expansion resulted from a favorable supply-demand environment, product cost improvements and a higher mix of flash-based revenue. Turning to operating expenses, our non-GAAP OpEx totaled $811 million. We were slightly above guidance due to higher performance-based compensation, driven by our better-than-expected financial results. We continue to make progress toward our integration synergy targets, while also…

Thank you. Ladies and gentlemen, we will now begin the Q&A portion of today's call. Our first question comes from Rod Hall of JPMorgan. You may go ahead.

Yes. Hi, guys. Thanks for taking my question. So I wanted to focus in on the NAND business a little bit and just see if you could talk to us about the ASP trajectory in the quarter, and how we should be thinking about ASPs as we look forward and we compare back to the spot market, relative to what you guys are recognizing. Any comment on your thoughts on bit growth would also be interesting, given Samsung continues to save 30% so you guys are a little higher than them. Thanks.

This is Mike. Let me give you comments on both. First on ASP, as you know, most of our bits are sold in products, not in the open market or at the component level, so we have realized pricing gains but – and we expect that favorable trend to continue through the back half of the year. But I would not peg us directly to the spot market price because of the way we go to market. Secondly, I think I noted the low end of the range, obviously the low end of the range being around 35%. I think we're – we remain comfortable that the industry will be in that neighborhood.

Great. Thank you.

Thank you. Our next question comes from Mehdi Hosseini with SIG. Your line is now open.

Thank you. We learned this today that former CEO of SanDisk and Chairman, just joined Micron. And, Mike, I want to better understand whether the things that you have put in place to safeguard from any potential recruiting of key assets, especially on the SanDisk side. And I have a follow-up.

Yes, well, part of – this is Steve, Mehdi. Part of our job is, no matter who shows up at what places, that our most important asset is our people. And part of the things that we try to do on a routine basis, is make sure that not only do they remain with our company, but that they're motivated and giving 110%, if you want to call it that, to the performance of the company, and we're going to continue to do that going forward, frankly, no matter who shows up at which one of the companies that may have an interest in recruiting our people.

Great. And then as follow up, going back to your helium-based product, how should we think about the mix between 10- and 12-terabyte, and do you have any assessment of your market share as helium-based products are further penetrating the install base?

Yes, let me comment. I think as the year progresses, we would see the increasing deployment as a percentage of the total of 10-terabyte, which we feel very comfortable with our current product capability as well as our design win outlook across the major consumers of that product. Later in the year we may see some 12-terabyte begin to happen at greater scale, so that transition has begun. We also see ourselves in a good position from a exabyte share perspective, and we would think those trends will continue in a positive manner throughout the year.

Thank you.

Thank you. Our next question comes from Amit Daryanani with RBC Capital Markets. Your line is now open.

Thanks a lot. Good afternoon, guys. I guess, first off, just on the 40% gross margin guide that you guys have for June quarter, could you just talk about what's driving the upside versus your longer-term model? And is it reasonable to think that both the NAND and HDD segments at this point are probably tracking well ahead of your long-term targets for each of those segments?

Well, I think right now we're seeing a combination of stable HDD market and a strong flash market, so it's that combination that's resulting in the 40% gross margin.

And strong execution, both from just an operational perspective and from a cost perspective, which obviously that part of it is something that we'll be doing in effect independent of the demand or pricing environment.

Exactly. And I do think on a go-forward basis over the long-term, we do have more opportunities to enhance the efficiency of our cost structure, both through our transformation that is ongoing as we said and through the deployment of our new technology as they ramp. So I think we feel very good about the gross margin performance and the long term, as we said, earnings power of this platform.

Got it. And if I could just follow-up, Steve, you talked about working with Toshiba to come up with a win-win solution with what's going on. Does that suggest that you're actually having more exclusive discussions with them at this point? And what do you think the time line to get a resolution on this process is from your perspective?

Well, the reality is we talk to Toshiba all the time. They're our partner, and so we have ongoing engagements with them or discussions with them at various different levels. The question with regards to timing, that I can't speculate on, and so I'm going to have to punt on the answer to speculating on that question.

Fair enough. Thanks a lot, and congrats on the great execution, guys.

Thank you.

Thank you. Our next question comes from Aaron Rakers with Stifel. Your line is open. Aaron Rakers - Stifel, Nicolaus & Co., Inc.: Yes. Thank you for taking the questions, and congratulations on the quarter. I wanted to talk a little bit about the operating expense line. Mark, I think a quarter or two ago you had talked about getting to a normalized operating expense level in the $770 million range for this March quarter. I know that you're guiding flat in the current quarter, but I'm curious of how you would currently characterize your normalized operating expense level as we start to look into the realization of the full synergies. And I have a real quick follow-up as well.

Sure. I think the most important thing to keep in mind from an OpEx standpoint is we have these two factors. One is we have the higher incentive base comp that flows through when we significantly exceed our expectations. So that's one part of it, but the second, and the more important part, is we are making ongoing investments that will enable future growth, as we see the opportunity to accelerate a number of our R&D projects. So we're doing that. As I also said, we're making continued investments in other areas of IT systems to make sure that we have the right platform for this sustainable growth. Aaron Rakers - Stifel, Nicolaus & Co., Inc.: Okay. And then as a quick follow up, I'm curious. Based on maybe my math, it looks like you saw a healthy maybe uptick in the average capacity per hard disk drive, and I'm wondering if you could talk about what you've seen there? And how we should think about that trajectory going forward?

Well, I think two dimensions. One is there's the normal seasonality, some of the lower capacity segments in the market were running at a lower rate in the period just closed. So you get the mix up effect that happens there. But the other one that's maybe more important and secular is, as we transition to 10 terabyte and 12 terabyte in capacity enterprise and as that segment takes on a disproportionately important role for us, that will continue to drive capacity per unit up. And as I commented earlier, we expect that to continue through the balance of this year and beyond. Aaron Rakers - Stifel, Nicolaus & Co., Inc.: Thank you.

Thank you. Our next question comes from Rich Kugele with Needham and Co. Your line is now open. Rich J. Kugele - Needham & Co. LLC: Thank you. Good afternoon, gentlemen. Two questions. First Mark, on the inventory side, days inventory increased or – is that just linearity in the quarter? Were you careful with shipping towards the end on any pricing issues? And then I have a follow up.

Sure. Rich, it was actually simpler than that. We had inventory build that was a function of a buffer for our ongoing transformation. And then we did have some inventory builds based on anticipated demand. So it was...

Primarily long lead time kind of stuff, right?

Yes.

With the fairly strong demand we're seeing in capacity enterprise.

That's right. Rich J. Kugele - Needham & Co. LLC: Okay. And then – thank you. And then secondly, when it comes to the industry, the NAND side, returning to a more normal environment, I mean, how should we think about that, Mike? Is that something that's going to happen all at once? Or you think it will be a gradual thing in 2018?

Sort of hard to be specific. I think what we – sort of the new news from us on this call that we've been talking about through the end of the calendar year, now our visibility would tell us, we think it's going to remain in a constrained environment sort of through the first half of 2018. How that evolves ultimately, hard to tell, Rich. Rich J. Kugele - Needham & Co. LLC: Okay. Well, thank you very much and the $12 number, thanks for providing that. That's very helpful and impressive.

Thank you.

Thank you. Our next question comes from Wamsi Mohan with Bank of America. Your line is now open.

Yes. Thank you. Steve, you said regarding Toshiba that WD should lead and help implement this transaction that would be good for all stakeholders. I was wondering what sort of ownership changes are you philosophically opposed to and why? Maybe without going into specifics of companies, but what sort of things are concerning to you regarding some of the options that were out there? Was it IP risk? Was it operational risk? What sort of things, if you could handicap that? And I have a follow-up.

Yes, I'm not going to get into the details of that on this call. One, a lot of this has been speculation in the press in terms of other bidders. And so I'd rather not get into the details of, one, our view on the situation, nor speculate on what's happening with some of these other supposed bidders.

Okay. Thanks. As my follow-up, sounds like your view on the tightness of the NAND environment, I think you guys just commented that's pushed out to first half of 2018. If you were to say, is this more a function of higher demand from newer applications or lower yields in NAND, causing supply shortages? How would you probably rank order those? Thanks.

Yes, I think – and this is Steve. I think it's a little bit of, kind of all of the above, so to speak. But one of the things that we need to understand is that this conversion – and it is a conversion as opposed to new capacity. This conversion to 3D NAND is difficult. It's difficult for all of us. We believe that we're executing in a very solid and sound fashion and demonstrated by the fact that we now achieve cost crossover with our 1Z platform. But this is tough stuff, and so it maybe is taking a little bit longer from a conversion standpoint and from a yield perspective than what people estimated. And so therefore, the bit growth rate is a little bit lower than all of us expected, and demand continues to be strong, driving a tight environment.

Yes. Thanks, Steve. Congrats on the great execution.

Thank you.

Thank you. Our next question comes from Karl Ackerman with Cowen and Co. Your line is now open. Karl Ackerman - Cowen & Co. LLC: You're clearly operating toward the high end of your long-term gross margin model that you just laid out four months ago with what looks like legacy SanDisk operating with a five handle in front of it. NAND ASPs are clearly helping you and you're still in process of your 64-layer ramp, but I was hoping you could touch on the opportunities to further expand your margins within the hard drive business and specifically enterprise, as your overall margins were a record this quarter despite what looks like softer enterprise units this quarter. And I have a follow-up, please.

Yes, I think there's two areas, and then Mark will have some details. So one is, is we continue to progress forward into the 10- and 12-terabyte in capacity enterprise. That's obviously helpful to our hard drive margins. The other thing is, which was also referenced, we are not through the transformation and restructuring and integration, which will help us optimize our cost basis. So both of those things are ongoing and continue through this year and into next year. Karl Ackerman - Cowen & Co. LLC: Got it. And just...

Yes. Karl Ackerman - Cowen & Co. LLC: Sorry. Go ahead.

Oh, no. I was just going to say a key part of the model is that given the diversified product portfolio, we have a number of operating levers that we can use to manage and optimize good environments and manage volatility in more challenging environments. So we feel very good about how that platform is evolving. Karl Ackerman - Cowen & Co. LLC: Great. Thank you. And just for my follow-up, you have begun to make meaningful progress on integrating Hitachi. But relative to your SanDisk integration efforts, there's still a lot of runway left and I was hoping you could just indicate where you are in the process of qualifying legacy SanDisk NAND into your own enterprise SSD business. Thank you.

Yes. So, I think, as we've discussed before, we are actually qualifying our own NAND into products as they are developing and they enter the market. We remain quite happy with our relationship with Intel, and if you think about it that way, it's actually incremental bits that we are providing to the market, so it's a net accretive or positive thing. So at this point, we are going to continue on through a generation or two, more products with our relationship with Intel, and we'll really up our participation of our own NAND in the enterprise through development and launch of new products within our portfolio.

And that vertical integration that you're talking about really is – was not contemplated in that initial $500 million of total synergies for the 18-month window. The lion's share of that will be reflected in the 2020 target of $1.1 billion of synergies.

Next question.

Thank you. Our next question comes from Mark Miller with Benchmark Co. Your line is now open.

There has been a leadership in the helium drives you've exercised for four years. Seagate has, I think, led in the shingled media area, but both firms are making progress in the areas that they were not originally leading in. I'm just wondering, do you see both firms coming to parity in each of those areas next year in terms of introduction of products and the quality of their products in shingled and in helium-filled drives?

I'm not going to speculate on that, Mark. I mean, we don't know where Seagate is and what progress they're making. I can tell you that our focus is on executing on our plans. And so in that regard, we will not be striving for parity.

What about the shingled media drives? Any estimates on what percentage of drives will be shingled media or are you going to just...

We haven't really provided that information. I mean, shingle's been a little bit more limited in terms of the applications because of some of the performance implications of that and that sort of thing. But we feel comfortable with where we're at in terms of SMR transition and the applicability and the drives that we're providing to our customers.

Congratulations and keep up the impressive results. Thank you.

Thank you, Mark.

Thank you. Our next question comes from Vijay Rakesh from Mizuho. Your line is now open.

Yes. Hi. I had a question. So, just looking at the Toshiba side, obviously, you guys are having a lot of negotiations there. Is there – do you guys have a right of first refusal? I know you have concentrates, but is there a right of first refusal and is there a time line to that process?

We have consent provisions, is what we have regarding any transferred assets and JV provisions, as I've mentioned earlier.

Got it. But is there a time line to that process at all or...?

Well, similarly, the answer to the question, I'm not going to speculate on time lines.

Got it. And the second question is that – on the NAND side, as you look at the 14 and 64 ramp, what's the mix in the back half and what's the – how do the gross margins look?

Well, we talked about our mix in the back half. It would be 75% of our 3D-bit output will be 64 layer exiting the calendar year.

And that's for the – no, that's for the full calendar year, which means that by the time you get to the back half, the lion's share of our output in terms of 3-D is going to be 64 layer.

Got it.

We're already transitioning out of 48 into 64. 48 layer was more of a learning platform for us, if you want to call it that, as opposed to something that we intended to extensively productize and ship. It was really for our learnings.

Got it. Great. Thanks a lot. Good quarter, guys.

Thank you so much.

So I want to thank everybody for joining us today, and we look forward to speaking with you going forward. Have a great rest of the afternoon.

This concludes today's conference call. Thank you for joining. You may all disconnect, and have a wonderful day.