Good afternoon, and thank you for standing by. Welcome to the Western Digital's First Quarter Fiscal 2018 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. I would now turn the call over to Bob Blair. You may begin.

Thank you, and 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, our market positioning, expectations regarding growth opportunities, our financial and business strategies and execution, our acquisitions, integration activities, and achievement of synergy goals; demand and market trends, our product portfolio, product development efforts and expansion into new data storage markets, deleveraging plans, our joint ventures with Toshiba and the outcome of related legal proceedings, investments in Fab 6, and supply of NAND flash memory. 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 Annual Report on Form 10-K filed with the SEC on August 29, 2017. Any applicable forward-looking commentary is exclusive of one-time transactions and does not reflect the effect of any acquisitions, divestitures or other transactions that may be announced after October 26, 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 on the Investor Relations section of our website. We have not fully reconciled our non-GAAP financial measures guidance to the most directly comparable GAAP measures, because material items that impact these measures are not in our control and/or cannot be reasonably predicted. Accordingly, a full reconciliation of the non-GAAP financial measure guidance to the corresponding GAAP measures 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. I thank you in advance for your cooperation. And now, I will turn the call over to our 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 first quarter and wrap up with our guidance. We will then take your questions. We reported continued strong financial performance in the September quarter, demonstrating the power of our platform and underscoring the differentiated value we can deliver, as a comprehensive data storage solutions leader. For the September quarter, we reported revenue of $5.2 billion, non-GAAP gross margin of 42%, and non-GAAP earnings per share of $3.56. We generated strong operating cash flow, reflecting continued healthy demand in our end markets, most notably in our flash-based businesses. With unabated growth in data creation leading to new challenges and opportunities for our customers, our transformation continues to resonate in the marketplace. I would now like to spend a few minutes reviewing where we are with Toshiba. There has been significant media coverage around this situation, and a lot of it is speculative. So, as a starting point, I want to emphasize that the JVs continue to operate efficiently and productively, which we intend to maintain. The JVs benefit from the best talent in the industry, and we are deeply appreciative of the professionalism, focus and dedication exhibited by the teams from Toshiba and SanDisk. From the beginning, our number one priority has been ensuring the longevity and continued success of the joint ventures. That is why we have invested so much time and energy into finding a resolution, one that respects our partnership, and resolves this matter so we can move forward in the spirit of collaboration and innovation that has been the hallmark of this 17-year…

Thank you, Steve. Good afternoon, everyone. Our September quarter results were better than expected, with demand for our products remaining strong. The joint venture fab operations in Yokkaichi continued as planned, and we made further progress in the ongoing conversion to 3D NAND technologies. In Client Devices, revenue grew nicely from the year-ago quarter, driven by increased demand for our embedded flash products and client SSDs. Our embedded flash products, such as iNAND, gained further adoption within the mobile OEM ecosystem, and our design win pipeline for these solutions deepened further for both current and emerging growth applications. Demand for our client SSDs grew due to increased adoption within our OEMs' product portfolios, coinciding with the expansion of our product offering. We began ramping our 64-layer based client SSDs for OEMs in the September quarter. And in the December quarter, we expect to launch our 64-layer eMMC solutions for the mobile and compute markets. Our Client Solutions revenue grew strongly from the prior year, driven by the diversity of our portfolio of HDD and flash-based products. During the quarter, we launched two new mobile lifestyle products, iXpand Base and My Cloud Home, as well as the world's highest-capacity microSD card at 400 gigabytes. The strength and appeal of our retail brands, along with a broadening product portfolio, is enabling us to continue to deliver differentiated value to the global consumer marketplace. In Data Center Devices and Solutions, our September quarter revenue was similar to the year-ago quarter, as combined revenue growth in enterprise SSDs and capacity enterprise hard drives was offset by the expected secular decline in performance enterprise hard drives. In capacity enterprise, as we previously commented, demand continues to be muted due to the ongoing industry-wide shortage of key components, principally DRAM, resulting in slower industry petabyte growth…

Thank you, Mike, and good afternoon, everyone. I'm very pleased with our financial performance in the September quarter. Our team executed well across our broad array of markets, as we capitalized on our diversified product portfolio, increased gross margins and achieved cost and expense targets, all of which resulted in significant earnings growth. We also finished the September quarter with an improved liquidity position as a result of our continued robust cash flow generation. It is important to note that our fiscal 2017 financial performance included SanDisk's operating results for the full fiscal year. So any year-over-year comparisons I reference today will be a direct comparison. Our revenue for the September quarter was $5.2 billion, an increase of 10% year-over-year, driven by strong performance in each of our end markets. Revenue in Data Center Devices and Solutions was $1.4 billion; Client Devices was $2.7 billion; and Client Solutions was $1.1 billion. Our data center business continues to be fueled largely by cloud-related storage demand. Our September quarter revenue for Data Center Devices and Solutions was flat year-over-year. We saw sustained strength from capacity enterprise hard drives and enterprise SSDs, offset by an expected decline in performance enterprise hard drives. Client Devices revenue for the September quarter increased 13% year-over-year, primarily driven by significant growth in mobility and client SSDs. Client Solutions revenue for the September quarter increased 16% year-over-year, mostly as a result of the strength of our valuable global retail brands in removable and other flash-based products. Our non-GAAP gross margin was 42.3%, up 840 basis points year-over-year. This gross margin expansion resulted from a favorable supply/demand environment for flash-based products, product cost improvements, a higher mix of flash-based revenue and the strength of our capacity enterprise HDD lineup. Turning to operating expense, our non-GAAP OpEx totaled $819 million.…

Thank you. Our first question comes from Mark Moskowitz with Barclays. Your line is now open.

Yes. Thank you. Good afternoon. I appreciate the details related to Toshiba. My only question here is really around the guidance here for 2018. Can you give us a sense here in terms of how you expect the mix of SSD versus HDD to play out? Will there be any sort of outsized change there? And do you actually get a benefit as NAND pricing does come down? Do you actually see the potential for pent-up demand for more NAND-based or SSD-based products for WD? Thank you.

So, Mark, let me give you some color on that. So, I think as we see ourselves progressing through this fiscal year, we feel fully comfortable with placement of our bit output in the various market segments. So, the demand is there sufficient to consume our bit output. Relative to the mix and penetration of SSD, I think that is somewhat slowed based upon NAND constraints at an industry basis. We would expect though the long-term penetration to kind of continue as planned, nothing sort of untoward.

Next question, please.

Thank you. Our next question will come from the line of Amit Daryanani with RBC Capital Markets. Please proceed.

Thanks a lot. Good afternoon, guys. I guess the first question maybe to start with, on the Toshiba dynamic, if they do go forward with the transaction that they've proposed, I'm curious, and you don't need to give me the exact details, but do you think you have a viable plan B, C and D to secure bit capacity beyond the calendar 2019 you've talked about? And broadly, the cross-licensing agreement you guys both have mentioned, the SanDisk IP, does that apply for Toshiba, even if they decide to ramp up production unilaterally without Western Digital? Or does that cross-licensing only get held up while it's done together?

Yeah. Amit, this is Steve. I'll take the second question first. I would prefer not to comment on that in terms of how the technology licensing arrangements work. And then the second thing is, as I indicated in my prepared remarks, the joint venture agreements require bit output to be provided to us over a period of time, out to 2029.

Got it. I guess if I could just maybe follow up on one thing, Intel, on their call, is just talking about signing a long-term NAND agreement and getting $2 billion of prepayment for that in 2017 and 2018. I'm curious, given the fact that NAND demand keeps outpacing the supply based on even what you guys are talking about, is there a potential for you guys to enter into strategic agreements with some of your bigger customers? And are you perhaps already doing that?

Yes. I think those sort of long-term arrangements are can be part of our ongoing practice. So, yes, we do those sorts of things, and from time-to-time, prepayments would be one of the elements of those agreements.

Perfect. Thank you.

Thank you. Our next question will come from the line of Mehdi Hosseini with SIG. Your line is the open.

Yes. Thanks for taking my question. Two follow-ups. In terms of NAND availability, how are you dealing with allocation? Right now, we are going through ramp-up by some of the smartphone OEM customers that you have. And, in that context, given the tightness, how should we think about allocation mix between enterprise SSD and embedded application? Do any of these customers have a long-term agreement, which would require you to fulfill? Or should we think about economics of each driving the allocation? And I have a follow-up.

Yes. So, our allocation philosophy has two dimensions. Obviously, one of them you referenced, which is economic. The other is strategic. So we're looking at our goals of, sort of, optimizing between our current and mid-term financial results and our long-term objectives of growing and diversifying our customer base across multiple product segments. So, it's a complex formula, and it really is based on those two things. Obviously, based upon our results, we are growing in basically all of those segments and you can see the results of some of that activity.

Yes. And I think just to add to that, the diversity from a market, product, and customer perspective that we have, oh, by the way, is by design. And the other thing is that, it allows us – it provides more resilience from a financial perspective to our model. So I think that diversification concept is something that is very central to the way that we run and manage the business.

Got it. And then looking longer term, especially with the nearline and higher density products, when should we expect MAMR samples to be out there? And I'm assuming that both HAMR and MAMR products are going to be out there. And for us from outside, we're trying to figure out when is the earliest that we could look into the market and figure out the differences and the cost benefit for each technology?

So, we said in our announcement that we would have samples out late in 2018 and production in 2019, which I just commented on. Relative to sort of our reasons for picking it, I stated in my comments obviously our view is the economic or commercial competitiveness of the technology made it a pretty obvious choice for us. Obviously, we needed to get some technology breakthroughs to get confident around our ability to achieve the areal density results required, but once that was done, it was a clear choice for us. One of the things I will point you to is really our internal manufacturing processes, and the ability for us to leverage the current perpendicular or PMR based manufacturing technologies and tooling we have in place.

So, by late 2018, we should see field data that would help us compare the difference between the two?

No, we will ship customer samples in 2018, we will ramp production in 2019.

Okay. Thank you.

Our next question will come from the line of Rob Cihra with Guggenheim. Your line is open.

Hi. Great. Thanks very much. Mike, you talked about the high-cap capacity growth reaccelerating or picking back up in 2018, after being muted in part by DRAM in 2017. I mean, is that just a sort of a DRAM availability thing? Or is there also an indication in terms of you talking to customers, cloud builders, service providers? I mean are you seeing their demand looking better irrespective of component availability? Thanks.

Yeah. Let me back up a little bit. I think the demand has been there all along, right? So, what's happening in 2017 is not a reflection of the true demand environment, it's certainly been muted by external or temporary factors. And yes, our view of 2018 is based upon close planning work with our customer base both in hyperscale and outside of that.

And do you find from your OEM customers – I mean are they more traditional OEMs? Are they taking enough high cap to offset declines in mission critical? Or is it really just now at this stage, it depends on what the cloud service guys do? Thanks.

Well, yeah, so for us certainly the big consumers of capacity enterprise are the cloud providers, or hyperscalers. But the traditional storage OEMs still buy at a substantial rate relative to its impact on performance enterprise hard drives, it's really not capacity enterprise eroding that, it's SSD's and the new architectures and better cost performance you can get, displacing a new system design and new architectures that performance tier with flash based products.

Great. Thank you.

Our next question comes from Aaron Rakers with Wells Fargo. Your line is now open.

Thank you. Just curious, as you roll up your forecast for fiscal 2018 – I'm sorry, looking into calendar 2018 I should say, I'm just curious what assumptions – I know you talked about long-term supply growth in that 35% to 45% range. What assumption are you making in terms of your own capacity, ability to supply capacity growth? And in that context, what are you assuming as far as your cost, the price erosion and your ability to take cost down as you ramp 3D 64-layer and beyond?

Yeah. Mike can take the first part, and then Mark can take the second part.

Yeah. Aaron, we talk about our expectation for bit growth rate, which is 35% to 45%. We would expect we will be growing in that same range, and we expect to be able to maintain the expected cost reductions that we've talked about, which are in that longer-range models 15% to 25%, as we continue to convert from 2D to 3D, it's sort of at the 15% to 20% at an industry level.

Okay. And kind of in that same context, as you look at the overall industry supply/demand dynamics, I know you talked about more or less a reiteration of favorable trends through the first half of the year, have you seen any indications at all, either positive or negative, as far as that potential even extending further or shortening?

Yes, I think at this point it's really too early to tell. Certainly, we don't have any indication strongly to one side or the other, at this point.

Okay. Fair enough. Thank you.

Our next question comes from the line of Wamsi Mohan with Bank of America Merrill Lynch. Your line is now open.

Yes. Thank you. Steve, it sounds like you're pretty confident in supply here in 2018, 2019 and beyond, but can you give us some sense of confidence that these JVs will keep up with future NAND development, so future output as the technology sort of progresses? And will you still have the supply, if arbitration proceedings potentially go against you? And I have a follow-up.

Yeah, it's in both of our best interest that we continue to advance the capabilities of the joint ventures from a technology and from a manufacturing perspective. And so, we're confident that ourselves and our joint venture partner will continue to invest appropriately in that capability going forward. And that's independent, frankly speaking, of how the arbitration proceedings turn out.

Okay. Thanks, Steve. And can you comment on expectation sort of NAND pricing? How much was that up relative to your expectations of flat in September quarter? And what is sort of embedded in expectations in your December quarter guide? Thank you.

I think we talked about last quarter that ASPs had flattened. That was our expectation coming into this quarter, and that's really our expectation as we sit today. So we don't see continued movement in a substantial way up, but it's being sustained at the current level.

Thank you.

Our next question comes from the line of Joe Wittine with Longbow Research. Your line is now open.

Hey. Thanks. Great quarter, and thanks for the discussion on the JV. Just one for Mark, on gross margin over the midterm, so obviously you expect supply demand fundamentals in NAND to stay favorable through the first half. Can you just address and even qualitatively, how you expect the GM line to trend after that point? And I ask mostly because the Street is still north of 40%, which is obviously solidly above the high end of your range. So any forward-looking GM commentary would be helpful.

Sure. And I think, certainly, as we look more near term, we are getting some benefit from the ramp of our BiCS3 technology, so that will give us some gross margin benefit, and that will continue into the first part of calendar 2018, which is a positive margin benefit. As we look out through and into 2018, that is our seasonally slower period in the first half for HDD, so we're going to have some offsetting declines in gross margin there. And I think net-net, we would expect still healthy gross margin through the rest of the fiscal year, but we wouldn't expect it to continue at the exact same level due to those seasonal factors and the mix with HDD.

Our next question will come from the line of Karl Ackerman with Cowen. Your line is now open. Karl Ackerman - Cowen & Co. LLC: Hi. Thanks. Good afternoon, everyone. I wanted to circle back on the NAND technology roadmap questions that were addressed earlier today. I understand that the Bain-led consortium must fulfill your supply agreements in place through 2029, but do the master agreements stipulate that Toshiba and the Bain-led consortium must invest in 3D NAND technology for your existing fabs? Because if not, it would appear that your lack of a supply agreement with Fab 6 today, where I think the current plan is to build 96 layer 3D NAND, limits your technology roadmap beyond the 3D NAND tools that are installed in Fab 3, Fab 4 and Fab 5 today? Thank you.

As I indicated, we provided a lot of details in terms of my prepared remarks in addition to the 8-K. And as I noted, that our number one priority is the continued longevity and success of the joint venture, and some of the details that you're asking, I'd prefer not to get lost in the weeds in terms of some of those questions at this point.

Our next question comes from the line of Katy Huberty with Morgan Stanley. Please proceed. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Yes. Thanks. Good afternoon. When do you see data center solutions returning to growth? Could that happened as early as the calendar first quarter? And then, maybe, Mark, can you comment on where you see OpEx levels exiting the fiscal year?

Sure. I will take the OpEx question, and then Mike can talk about the Data Center Devices and Solutions. In terms of OpEx, one of the things we should keep in mind is that we tend to have, or we annually have, a small spike in calendar Q1 that has to do with the reset of payroll taxes. So we would otherwise expect OpEx to be relatively consistent through the rest of the fiscal year, other than this slight increase in calendar Q1. And I think the key point is we will be exiting the year roughly in a position that's consistent with our long-term model, plus or minus, and I think we're currently operating within our long-term model much earlier than we had anticipated. The long-term model being 14% to 16% of revenue. And so I think our continued efficiencies that we're gaining from our achieving the synergy targets and from other transformational projects that we have ongoing should allow us to continue operating in a healthy range consistent with our long-term model.

Relative to the Data Center Devices and Systems – or Solutions growth, I think two things, two factors, I talked about Exabyte (44:58) growth rate relative to capacity enterprise expected to reaccelerate as well as our continued and planned progress around enterprise SSD product offerings puts us in a good position, as we progress through 2018 calendar year to have growth as we go. Kathryn Lynn Huberty - Morgan Stanley & Co. LLC: Thank you.

Our next question will come from the line of Vijay Rakesh with Mizuho. Your line is now open.

Hi, guys. Just on the hard disk drive side, I was wondering if you could give us some color on 10-terabyte, how it grew sequentially and how do you see the December quarter and looking out.

Yeah, the color we'll give you is we did see significant quarter-to-quarter growth on 10 terabytes. We also saw the initial ramp on 12 terabytes, and we would expect that will accelerate into the current quarter. So, the continued movements of the market to the highest capacities in this case 10 terabytes and 12 terabytes is progressing very well. And we're very pleased with how that's moving in our business.

Got it. And on the NAND side, when you look at the 64-layer NAND, where do you expect the mix of 64-layer by bit exiting this year? And let's say middle of next year, how do you see that? And with the Toshiba spat going on, do you see any disruption in that 64-layer ramp? Thanks.

I don't think we provided any numbers for calendar 2018 at this point. But we are getting more fixed re-output (46:38) than the 2D NAND at this point, so we've realized that crossover point. And we've seen no impact of the situation with Toshiba that's changed that. No disruption to what our expectations and plans were previously, and we do not expect that into calendar 2018 either.

We'll wrap up with this next questioner. Thanks.

Our next question comes from the line of Stanley Kovler with Citi Research. Your line is now open.

Thanks very much. I just wanted to continue the discussion about the outlook. As we think about the beginning of next year, clearly the PC market has held up a little bit better this year. What's your thinking about the first half of the year? You mentioned some seasonality in your business, is that the area where we should see the most seasonality? And implicitly with gross margins staying in that low 40% range, the seasonality in the first half, presumably when volumes return into maybe the second half of 2018, does that imply that we get some strength back in margins as well? Thanks very much.

Yes, I think your perspective – one of the drivers for seasonality is PC, so, yes, you're on it. Also the consumer segments of our business also see a seasonal trends, that would include gaming, as an example. And yes, obviously, when we move into the second half of the calendar year, we do see some absorption benefits that help us on the margin.

Yeah. From an HDD standpoint, we'll see that. And then for the remainder of the calendar year, the flash margins will depend on the supply/demand environment.

All right. So you've got a follow-up question quickly, please? I think we're done. Okay.

All right. 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 day.

This concludes today's conference call. Thank you for joining. You may now disconnect.