Western Digital earnings rosy, NAND issues remain

Western Digital reported a solid $4.6 billion in revenue during last week’s earnings call yet chip and NAND flash supply issues hang over the vendor.

Western Digital, which sells hard disk drive and solid-state drives, is fighting to preserve its 17-year semiconductor joint venture with Toshiba in Japan. Western Digital CEO Steve Milligan said his company intends to preserve its interests with respect to any potential transactions involving financially troubled Toshiba.

During the Western Digital earnings call, Milligan claimed no sale of Toshiba’s memory unit can be completed without his company’s consent.

Western Digital has invested $13 billion in its joint venture with Toshiba since 2000, according to Milligan. He said the company is “committed to continuing this storied partnership in Japan.”

Western Digital is reportedly among four bidders for the Toshiba business, along with Broadcom, FoxConn and SK Hynix.

Milligan declined to comment on time lines for any deal or “what’s happening with some of these other supposed bidders.”

Meanwhile, the NAND flash shortage that started last year appears to be stretching through 2017. Micheal Cordano, Western Digital president and chief operating officer, said the company thinks NAND flash will remain in a “constrained environment” through the first half of 2018. He added that it’s hard to tell how “that evolves ultimately.”

Milligan said the conversion from 2D, or planar, NAND to 3D NAND has been difficult for WD and all manufacturers.

“This is tough stuff, and so it may be taking a little bit longer from a conversion standpoint and from a yield perspective than what people estimate,” Milligan said. “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.”

Cordano said Western Digital made progress in its ongoing conversion to 3D NAND technology, beginning shipments of 64-layer 3D NAND in the client SSD form factor. He said the company expects to expand the 64-layer technology across its product portfolio during 2017.

This year, Western Digital plans to produce more than 75% of its total 3D NAND bit output based on the 64-layer architecture, according to Cordano. He said WD’s estimates for NAND industry bit growth rates are at the low end of the long-term industry outlook of 35% to 45% for 2017 and somewhat higher in 2018.

Western Digital earnings head in positive direction

The Western Digital earnings call includes several pieces of good news for the vendor. The $4.6 billion in revenue and earnings of $248 million last quarter and forecast of $4.8 billion for this quarter all beat Wall Street expectations.

Western Digital’s revenue included $1.3 billion for its data center business, fueled by cloud-related storage demand, according to Mark Long, the company’s CFO and chief strategy officer. Long said sustained strength in capacity enterprise HDDs and sequential growth for enterprise SSDs offset the decline in high-performance enterprise HDDs.

Cordano said sales of enterprise-class SSDs were solid, and hyperscale customers have growing needs for WD’s 10 TB helium-based HDD. He noted the company completed qualifications of the 10 TB drive with key customers during the quarter. Western Digital has shipped 15 million helium HDDs since the product line’s launch four years ago, according to Cordano.

Enterprise HDD shipments dropped from 6.4 million to 5.8 million from WD’s second fiscal quarter to the third fiscal quarter ending in March. But the exabytes shipped increased from 26.3 to 26.5 during that time frame for data center devices.

Last week, Western Digital began shipping its first 12 TB helium-based HDDs. The new 3.5-inch HGST-branded Ultrastar He12 offers the option of 12 Gbps SAS or 6 Gbps SATA interfaces. The Ultrastar He12 uses eight disks, two more than the highest capacity air-based enterprise drive, to facilitate the increased capacity, according to Western Digital.

Milligan said the company expects to see increasing deployment of 10 TB helium-based HDDs this year and could see 12 TB HGST-brand Ultrastar HDDs happen at greater scale later in 2017.

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