Good afternoon, and thank you for standing by. Welcome to Westin's Digital Fourth Quarter of This 2019 Conference Call. As a reminder, this call is being recorded. Now, I would like to turn the call over to Mr. Peter Andrew.
You may begin.
Thank you and good afternoon. Before we begin, I would like to remind everyone that today's discussion contains forward looking statements including product development expectations business plans, trends, and financial outlook based upon management's current assumptions and expectations. And as such, does include risks and uncertainties. We assume no obligation to update these statements. Please refer to our most recent financial report on Form 10 Q filed with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially.
GAAP financial measures are included in the press release and other materials that are being posted in the Investor Relations section of our website. With that, I'll now turn the call over to Steve Milligan, our CEO.
Thank you, Peter, and good afternoon, everyone. With me today are Mike Cordano, President and Chief Operating Officer and Bob Eulow, Chief Financial Officer. We ended fiscal 2019 with a significantly expanded market presence in both capacity enterprise and client SSDs and began building momentum for our enterprise SSDs. The Western Digital team maintained its focus on execution, further improved operational efficiency, and delivered in the midst of various In hard drives, we continue to focus on the higher growth, higher margin portion of the market, namely capacity enterprise. Our technology leadership demonstrated by our 14 terabyte drive combined with the breadth of our portfolio across we doubled our I'm also pleased that at both major hyperscale and OEM customers, positioning us for strong growth in this area in fiscal 2020 beyond.
In May, we announced a formal agreement with our flash JV partner Toshiba Memory Corporation to to jointly invest in the K-one fab. This new facility will provide On the cost front, we accelerated the streamlining We also made significant In terms of our June quarter performance, overall results In hard drives, the ongoing customer transition to our 14 terabyte capacity enterprise drive drove meaningful sequential revenue growth. In Flash, revenue declined sequentially as an improved product mix was more than offset for the second half and hard drive products. Before I hand the call over to Mike, I want to provide some comments on 3 additional topics. Huawei, the Yokaiji JV fabs, and Flash inventory.
Effective May 16, the U. S. Commerce Department's Bureau of Industry And Security, or BIS, added Huawei to its entity list. Western Digital stopped shipments to Huawei at that time. After discussions with the Commerce Department on the relevant laws and regulations, We determined that the entity list regulations do not apply to products that were previously qualified for Huawei and we started Western Digital's business activities that are subject to the entity list restrictions remain on hold but we have applied to the BIS for a license to resume those activities Turning to the YolkedaiQ fabs, an unexpected power outage occurred on June 15th effective affecting production operations at the Flash Fabrication Facilities operated by TMC.
Since that event, the Western Digital And TMC teams have worked diligently on recovery activities And as of now, nearly all of the equipment in the fabs has returned to normal operations. Consistent with our prior comments, the disruption to fab operations caused a loss of approximately 6 exabytes of wafer output for Western Digital with most of the wafer output impact expected to be contained in the September
we will be
With respect to Flash inventory, based on recent industry announcements and a stronger demand environment, we estimate It is still too early to characterize it as a trend, but we are seeing a more stable pricing environment for our Flash business. In summary, we are successfully navigating dynamic market conditions, Our hard drive business is performing well and we believe that the flash market has reached a cyclical trough The secular trends of data growth and its increasing value key drivers of our business opportunities are strong. Our continued transformation into a data infrastructure company is on solid footing and we look forward to reporting on our progress. Want to thank the Western Digital team and our partners for their ongoing support. With that, I will now ask Mike to share our business highlights.
Thank you, Steve, and good afternoon. I'd like to begin by amplifying Steve's perspectives on fiscal 2019. We made significant strides in broadening and strengthening our product portfolio, particularly in capacity enterprise drives, enterprise SSDs, client SSDs and embedded products, while maintaining our strength in our retail offerings. In fiscal 2019, we expanded our lead in aerial density and established the 14 terabyte capacity enterprise drive as an industry standard. Were the first to announce the 1618 terabyte products based on our energy assisted recording technology.
In Flash, we are the first to successfully commercialize our 96 layer three d technology across a range of products. And we will continue to implement it across the rest of our portfolio in the remainder of calendar 2019. Moving to highlights for the June quarter. In data center devices and solutions, a broad adoption of our new capacity enterprise product drove a mid single digit year over year exabyte shipment growth for the first half of calendar twenty nineteen. Outpacing industry growth resulting in exabyte share gain.
Coupled with our continuing expectation for stronger demand in the second half of calendar 2019, we have high confidence that our capacity enterprise exabyte shipment growth will meaningfully exceed 30% for this calendar year. Our 14 terabyte capacity enterprise drive qualification activities are complete at virtually all hyperscale and OEM customers. And the accelerating adoption of There have been some market rumors suggesting that customers are skipping the 14 terabyte generation to adopt the 16 terabyte capacity point. But our demonstrated performance with our 14 terabyte offering should invalidate those claims. In addition, we are on track to introduce our first energy assisted recording 16 terabytes CMR and 18 terabyte SMR hard drives later this calendar year.
In enterprise SSDs, I'm pleased that our internally developed NVMe platform is commencing revenue ramp at hyperscale and OEM customers in the current quarter. Next week, at the Flash Memory Summit, we will be announcing additional enterprise NVMe product implemented with BiCS4. We expect a significant acceleration of our enterprise NVMe product revenues over course of fiscal 2020 and beyond. Within client devices, surveillance continues to be a long term driver We are leading the transition we expect to For client SSDs, shipments of our NVMe based products grew significantly representing nearly 50% of our client SSD revenue. As price points have declined, we are seeing customers migrating to higher capacity points and the average capacity per unit of our client SSDs increased 50% on a year over year basis.
In Client Solutions, we are very pleased with our further expansion in our market
Okay. Okay.
I'm sorry. In mobile and embedded, we continue to strengthen our product portfolio, including the announcement of a 3 d NAND automotive grade product, broadening our automotive offering with unique capacities and capabilities Due to market conditions and geopolitical dynamics, we reduced our participation in mobile during the June quarter and expect to see immediate recovery of our participation in mobile in the September quarter. As Steve described previously, we stopped shipments to Huawei for about a month, having subsequently resumed shipments As a result of the stoppage, we estimate there was approximately $100,000,000 revenue impact in the June quarter. Given the ongoing uncertainties our near term opportunities at Huawei have been reduced. In Client Solutions, we are very pleased with our continuing success in the external SSD category with further expansion in our market share.
Average capacity per unit for flash devices grew 36% year over brand and our customer's preference for the performance and reliability of our solution allowed us to maintain our leadership position. From a flash supply perspective, as Steve mentioned, the JV fabs have essentially resumed normal operations. I will share We anticipate the incident will result in a reduction of Western Digital's flash wafer availability of approximately 6 exabytes consistent with our prior estimate. We are working closely with our customers to align to their increasing demand. For calendar 2019, we estimate industry flash bit supply growth in a low 20% range.
Turning to flash technology, The ramp of BiCS4, our 96 layer 3 d flash technology is progressing well and we expect Vit crossover exiting the September quarter. We expect to ship Bix4 technology offerings in each of our product lines before the end of calendar 2019. Looking beyond the normal course of business, we are driving an important industry level initiative called zone storage. This approach is an open source standards based initiative, which was formally announced in June and will be further discussed and demonstrated with the Flash Memory Summit next week From a customer perspective, intelligent data placement and greater economies of scale for applications such as video, artificial intelligence, machine learning and IoT. Z1 storage will utilize a combination of SMR hard drives and NVMe SSDs, including QLC offering.
The zone storage initiative brings together our deep expertise in both the underlying storage and system level technologies and is a great example of what the power of our portfolio can deliver for our customers. In summary, we are entering the new fiscal year with a significantly enhanced product portfolio. Linear costs and expense structure and a persistent drive to address and capture the opportunities presented by the The Western Digital Platform continues to strengthen and combined with our ongoing focus on execution, we are positioned to perform well in a variety of market conditions. Will now turn the call over to Bob for the financial discussion.
Thanks Mike and good afternoon everyone. I'm pleased to announce that results for the June quarter were in line with our expectations provided in April. Revenue for the June quarter was $3,600,000,000, down slightly from the March quarter. 2% as we experienced continued strength in capacity enterprise drives. Client devices revenue declined slightly as growth in the client SSD Client Solutions revenue decreased 6%, primarily due to lower flash pricing.
In the June quarter, Flash revenue was $1,500,000,000 with a 1% sequential decline in bids and a sequential average selling price per gigabyte decline of 6%. Hard drive revenue of $2,100,000,000 was up 3% sequentially led by strong demand for capacity enterprise drives. Moving on to costs and expenses. All of my comments will be related to the non GAAP results unless stated otherwise. Gross margin for the June quarter was 24.2 percent with a flash gross margin of 19% and a hard drive gross margin of 28 percent.
Hard drive gross margins were slightly below expectations due to surveillance and desktop margin to lines, offsetting improved margin in capacity enterprise drives. Hard drive gross margins will show the full benefit in the December quarter from our previously discussed closure of the Kuala Lumpur facility. Excluded from the cost of revenue was a final $67,000,000 charge related to the planned under utilization of our portion of the Flash joint venture fab. Bringing an end to this program We took a GAAP and operations in the Yokayichi Flash Manufacturing Facility. We expect to incur an additional charge in the range of 170 $190,000,000 associated with this event.
Operating expenses were $722 the low end of our guidance as a result of continued progress on our expense reduction targets. Operating cash flow for the June quarter was $169,000,000 and free cash In the June quarter we paid $146,000,000 in dividends to our shareholders. At the end of the quarter, we have $3,450,000,000 in cash and cash equivalents and our gross debt outstanding was $10,700,000,000. Our liquidity position continues to be very strong with the cash and cash equivalents I just mentioned and the $2,250,000,000 of undrawn revolver capacity. In April.
As we generate free cash flow going forward, our first priority will be to reinvest in the business to maximize long term shareholder value. After paying our dividend, our gross leverage. Inventory dollars were down approximately $160,000,000 sequentially to 3 $300,000,000 hard drive inventory decreased due to the drawdown of inventory built to enable the Kuala Lumpur facility closure. Flash inventory also decreased primarily due to scrap of work in process inventory at the fab as a result of the power outage. We expect both flash and hard drive inventories to decline further in the September quarter.
Now I will provide our guidance for the first quarter of fiscal 2020 on a non GAAP basis. Please note that the September quarter will be a 14 week period. We expect revenue to be in the range of 3.8 We expect gross margin to be approximately 24% to 25%. Please note that this range includes approximately $50,000,000 of startup costs associated with our investment in the K-one fab. We're on track with our previously announced efforts to lower our cost of revenue by $100,000,000 per quarter by the end of December quarter.
Operating expenses are to be between $750,000,000 $770,000,000 on a 14 week basis. We're on track with our original target The 14th week will add approximately $45,000,000 of operating expenses in the September quarter. We expect interest and other expense of approximately $95,000,000 and we expect the tax rate to be 27 percent plus or minus two points. As a result of this detailed guidance, we expect earnings per share between $0.15 $0.35 assuming approximately $300,000,000 in fully diluted shares. For those of you who've worked with me in the past, you know that prudent cash management has always been one of my key areas of focus.
Total cash capital expenditures at Western Digital include the cash CapEx on our balance sheet, along with a net change in notes receivable for our Flash joint ventures. For fiscal 2020, our preliminary estimate for total cash capital expenditures is which is a significant reduction from the The key drivers for the reduction in total cash capital expenditures are the previously announced planned slowdown in our capital deployments. The timing on the payment for capital equipment and an anticipated increase in lease financing for the flash JVs. Before I turn over the call to the operator, I would like to note that I'm very excited about the company's position as we enter the new fiscal year. For me personally is a great time to be at Western Digital.
We clearly have momentum in the capacity enterprise part of our HDD business And in Flash, we are successfully ramping our NVMe platforms for client and enterprise applications while maintaining our strong retail presence. There are signs that market conditions in Flash have reached the cyclical trough and we are now entering the seasonally stronger part of the calendar year. My goal is to ensure that we maintain financial discipline to deliver the best business results as we look into
Ladies and gentlemen, we will now begin the question and answer portion questions. Our first question comes from the line of Aaron Ryker with Wells Fargo. Your line is open.
Yes. Thanks for taking the questions. 2, if I can real quick. So first of all, underpinning your gross margin assumption for the current quarter. I'm just hoping that you could provide us with a little bit more granularity of how we should think about distract gross margin, given that that was relatively weak, I think, first expectations in this last quarter.
And then how do we think about the gross margin on flash business, not just for this current quarter, but as we start to see kind of the cyclical trough story play out, how we think about the gross margin moving higher over the next couple of quarters? Thank you. And then I do have a follow-up.
Yes. So Aaron, I'll address that and then Mike Bob can add a little bit of color. In terms of ACD gross margins, if you go back historically, I know you're well familiar with us, Aaron, but We would normally expect our gross margins to be in the low kind of 30% range, say, 31, 32% So we're operating below where we'd like to be. And we would expect that as we move through the balance of this year and certainly into 2020, we would see our gross margins begin to move more back into that range. And so that's kind of our expectation from that standpoint.
Flash, I would say that we'll be similar performance, maybe slightly down. It kind of hard, but it ranges to say roughly similar to where we're at right now. A lot of that's going to depend upon the pricing environment. And we're seeing a more stable pricing environment from what we've seen over the last several quarters. And we would expect that as we move through the balance of fiscal 2020.
We will see an improving gross margin profile on our Flash business as well.
Yes. And Aaron, let me just add, and Bob sort of mentioned this. So in our desktop category, so the drag in the quarter just reported is really we're in the midst of product transition on desktop and surveillance. So that was a drag to HED margin. And just to reiterate what Steve said, we expect to see trending up sequential HD margin in the back half of this year and beyond.
Yeah. I think, Pete, I'll just add one thing. The other thing I mentioned is we on the flash side, we are expecting improvement, but we do have a headwind of the K1 startup costs, which we saw some in the fourth quarter. We'll see again in the first quarter and throughout this fiscal year.
Very helpful. And then just as a real quick follow-up on the Flash business. I think one of the notable things that differs in your results here tonight is kind of the capacity shipment number down 1% on a sequential basis versus I think Hynix and Samsung were like 30% or 40%. So I'm curious of how you think about that differential? Is it Huawei driven?
Is it your lack of participating in kind of the discrete market? And what is your expectation as far as bit growth into the September quarter? Thank you.
Yes. So as I talked about my script, Aaron, this is really impacted the mobile category and it's both some impact of the geopolitical activity, but also some choices around business that we didn't see was favorable from a profitability standpoint or lower ASP. So the 2 of those drove the bit shipment delta on our side. And obviously, we think we've got more interesting places to spend our bits as we progress through the calendar year.
Yes. And Aaron, I mean, you can you'll notice this as well. Our sequential ASP decline in the flash area was meaningfully lower than others reported numbers, which there's a direct correlation in terms of that data point and our participation in
And our next question comes from the line of Wamsi Mohan with Bank of America. Your line is open.
Yes, thank you. A quick one for Bob. The tax rate that you're forecasting here in Q1 is is quite high. How should we be what is driving that tax rate for the quarter? And how should we think about modeling that for the rest of the year?
And I have a follow-up.
Yeah. Thanks, Wamsi, for the question. So, actually at the beginning of the year, what we do is we forecast the tax rate that we're going to experience for the fiscal year. And we actually have a very good set up here as our profit improves. But right now, given where our profitability is at, we have certain minimum tax payments that we have to make and in some jurisdictions around the world.
So that's why the rate is somewhat inflated as our profitability improves as we move forward. We're expecting the rate to come down.
Okay. Thanks, Bob. And then more broadly, you've noted a sort of more positive tone around the demand environment. Can you address a little bit more specifically what specific areas you're seeing signs of improper demand for you? And just a follow-up quick one on Huawei as well.
You said there might have been about $100,000,000 of lost sales here for the stoppage shipments for a month, but as you resume shipments, it sounded like you're not doing that at your full rate. So at what rate are you expecting to be shipping in the September quarter relative to maybe the anticipated reduction that you're foreseeing here.
Okay. On the
overall basis, I think the way we look at end market growth, certainly we see strengthen the data center across both HDD and Flash as we get into the back half of the year. We think there's growth possibilities both at the market level and specifically for us. We also see continued resilience in normal cyclical demand flowing through the historical PC category. So we see that trend continuing to be good both in terms of unit demand, but also in terms of capacity mix of that demand. And generally speaking, mobile is on a relative basis, stronger in the second half than it was in the first half.
So I think that's the general theme. So we do see normal seasonality across markets that tend to behave that way. And then obviously the data center see is continuing to show robust capital spending, expectations moving forward.
Yeah. And then relative to Huawei, we we have resumed shipment as we noted in the prepared remarks. But during the time when we see shipment to Huawei, they moved their sourcing requirements to, some of our international competitors that were not impacted by the entity list. And when we subsequently resumed shipment, it was at a reduced rate that contemplated them sourcing components from from other competitors.
Thank you. Our next question comes from the line of Harlan Sur with JP Morgan. Your line is open.
Good afternoon. Thanks for taking my question. If I'm doing the math quick, please. So your full year industry outlook for capacity enterprise HDD exabyte shipment growth of 30% that implies about 60% year over year of 60% petabyte consumption in the second half versus the first half. That's that's a very strong acceleration in the second half.
First of all, is this about right? And this implies strong capacity to enterprise shipments in the second half? Secondly is the cloud data center strong uptake pretty broad based across most of the large U. S. Cloud and hyperscale guys or limited just a few?
Yes. So I think you're about right. And that's really reflective of our growth. We do see general strength in the market, but I think we're growing at a faster rate than the rest of the market.
Yes. So the 30% that we were talking about was our growth. Not necessarily industry.
Correct. But your math on, if you look at half to half comparison,
that sixtyforty is consistent with our math.
Got it. Okay. And I appreciate that. Good traction in the 14 terabyte. On enterprise NVMe commencing revenue ramp this quarter, good see the initial design win traction.
When will the higher margin profile of these products start to show up as a mix related gross margin? Impact? Is it December quarter you think? Is it more first half of next calendar year?
Yes. I think there's some positive impact in the December quarter and it will sort of accelerate as we move forward.
Yeah. And the other thing is that putting aside what it'll do to margins, it also allows us to diversify and derisk our placement of bits going forward.
Great. Thank you.
Thank you. Our next question comes from the line of Carl Ackerman with Cowen. Your line is open.
Hi, gentlemen. And thanks for letting me ask a question. 2, if I may. First, Steve, Bob or Mike, you've made great progress on transitioning to 96 layer 3 d NAND. And you indicated in your prepared remarks that client SSD capacity rose 50% year over year.
I guess I'd like to ask how you think philosophically about your consumer hard to drive businesses relative to your client SSD businesses now that NAND prices have effectively been cut in half on a year over year basis and NAND demand elasticity as you called out is making SSDs much more economical today?
Yes. So I think the way we think about that and I think it's central to why we combine these assets. There will be a reasonably long tail on a client HD assets, both 2.53.5. But what we've seen as we move back into this pricing regime is this sort of continued predicted penetration of SSDs into what was historically the HD part of the PC market. So that continues sort of plan.
Obviously, with the adjustment we made in our manufacturing footprint was in recognition of that. So I think from our standpoint, things are generally progressing as planned and we're well situated to take advantage of that shift from one to the other maintaining sort of the profit delivery of the HTD business as it moves into its later stages within the PC segment. But grow within the SSD transition on the other side.
That's helpful. I guess as my follow-up question, Regarding your NAND industry bid supply assumption of low 20s, I assume that's a production number But how should we think about your own bit supply number, which I guess I would imagine would be mid-30s or higher? And as a in relation to that, I'm curious how we think about idling wafer capacity and going after or seating market share in certain areas, mobile, as we described earlier, when some of the South Korean peers appear to be going after share near term. I guess, how should we think about the longer term implications of that in regards to our cost structure? Thank you.
Yes. So I think one of the things to think about is we focus very carefully on capacity relative capacity share. I think we remain in a quite competitive position. The short term decisions we'll make based upon sort of economic and current market conditions we see as more tertiary. Right?
So ultimately, we were comfortable with the decision we made several quarters ago to run underutilized. That brought into the middle of the year with a better overall inventory position than we would have otherwise had. And ultimately we're able to place our bets in a way that gives us a better overall economic outcome.
Yeah. And I would just to quibble a little bit with your choice of wording, I would not say that we ceded market share in the mobile market. We determined that at the prices that were in effect, it did not make economic sense to take that business. And so it was an economic decision that went into that as opposed to the seeding of market share. Thank
you.
Of CJ Muse with Evercore. Your line is open.
Yeah, good afternoon. Thank you for taking the question. I guess a bit of a follow-up question. I'm not sure I completely Understood. I believe on the NAND bit growth outlook for calendar 'nineteen across the board, we've heard 30 plus percent from your 3 major competitors and you guys are talking low 20s.
So is the low 20s what you expect to ship this year? That's production And as part of that, if in fact you are growing less than the industry, can you speak to how you're going to focus those bits and what are the implications we should be thinking about to your NAND gross margins?
Yes. So let me clarify both the 20% or the 30%. If we looked at the consumption of bits, by our customers and this is an industry statement, it would be in that 30% range. Well, we're talking about the 20% that is our estimate of industry growth and supply. The difference between the 30% and the and the 30% and the 20% is consumption of industry inventory, which we as we exit this calendar year.
And you're talking industry inventory downstream or on Vitmaker books?
Both.
Industry in the supply chain, whether they whether it's in whether it's inventory on hours in our competitors' books or it's inventory that was built up either in the channel or at our customers.
So I guess as we model you guys through the second half of the year, we should be thinking about your bit shipments to revenue in the low 30s range or the low 20s range?
Yes. So you should think about us in the low 30s range.
Okay, great. And then I guess as my follow-up, As you think about just short term for the Q3 guide, I'm coming to roughly 60% of the incremental revenue growth coming from NAND, is that fairly accurate?
Yeah. We're going to see growth in both hard drives and in NAND. I don't know if we're going to get too specific on the markets, but we're going to it's going to show good growth in both areas.
Thank you. Our next question comes from the line of Mimi Hosseini with SIG. Your line is open.
Thank you. I have a couple of follow ups. Is actually encouraging to hear a cycle bottoming and I think demand forecast is always going to be volatile, but it seems to me that you have a better control of the cost So if I were to hypothesize and assume that ASPs would just be flat, is it NAND ASPs flat into 2020. How should I think about your ability to expand NAND margin? And not asking for a specific margin target.
I'm just trying to better understand, A, the mix of business that you're pursuing especially given your preference on higher margin business? And B, how the 96 layer 3 d NAND is going to impact your costs. So any color on margin expansion, assuming that prices will be flat in 2020 will be great. And I have a follow-up.
Yes. So, Mehdi, let me add this is Steve. Let me address that in a broader sense. We expect as we move through fiscal 2020, that our gross margins 2020.
We just have to wait and see how the supply and demand dynamics would impact pricing to have a better sense of gross margin. Would that be fair?
Yes. In a literal sense, But absent what the specific dynamics are, we expect that our gross margins will continue to improve for both hard drives and flash as we move through fiscal 2020. Also with the expense reductions and other things that we would see in increasing and improving EPS performance as we move through fiscal 2020.
Okay, fair. And just a follow-up question for Bob. We've had 2 consecutive quarter of negative free cash flow. How does it evolve into the second half of the calendar year? And given your conservative CapEx and improving margin profile, should we expect free cash flow growth to accelerate into the new calendar year?
Yeah, so good question. And we're very focused on cash generation right now. And I do expect we'll see improvement. We're not going to give a forecast for free cash flow for next year, but we're definitely expecting to generate cash. And as I mentioned, there are some timing benefits for us with respect CapEx next year.
So I think it'll be a pretty good cash generation year.
Would it be kind of breakeven at the worst case into the second half of the year?
I would say it's definitely a worse case.
Thank you. Our next question comes from the line of Steven Fox with Cross Research. Your line is open.
Thanks. Good afternoon. Two questions for me as well. First of all, just getting back to the mix issue, is it reasonable to assume given some of the positive product developments you talked about on opening that you start to see gross margin benefits from mix as you get maybe into the 2nd or 3rd fiscal quarter of this year. And where we might see that in HDDs and NAND.
So then I had a quick follow-up.
Yes. So let me talk about Flash. So I think it is reasonable to assume that on every on a normalized basis or flat margin mix will help us on the margin rate. Obviously, to the comment Steve made, we expect the overall margin rate on Flash and HDD to continue to migrate in a positive direction through the year. Same goes for HDD as the capacity enterprise becomes an increasingly large part of our output we see an upward trend on mix as it affects market.
That's helpful. And then just following on that answer on the HDD side with the 14 TB ramp now, going pretty strong. Do we think about average capacity per drive maybe reaccelerating, especially as you get into 16 18 TVs or do we look back at how it's been over the last 18 to 24 months as a guide for going forward? Thank you.
I think we're going to see sort of our long term, sort of, rate is 40% year over year exabyte growth. We obviously have seen a down year this year, but we expect to return over time to roughly that 40% annualized growth.
And that's capacity enterprise, Stephen.
And that's including based on what you're seeing in terms of your own product development, say sets it beyond a year.
Yes. And that is an industry number and obviously our performance, at least in the short term, we're outperforming.
Great. Thanks for the color.
Thank you. Our next question comes from the line of Vijay Rakesh with Mizuho. Your line is open.
Yes. Hi, guys. Just wondering, on your NAND side, what's the split of 64.96 layer? And especially exiting the year?
Yes. So we talked about that in my prepared remarks, bit crossover happens as we exit this quarter in September. That's the 96 layer.
So the total bid output crossover point happens
in September.
Got it. And just to clarify, I think you mentioned CapEx, cash CapEx goes to $500,000,000 for fiscal 2020 from $1,500,000,000 fiscal 2019. Is that correct? And Do you think that would impact, any of your bid supply or transitions as you go into fiscal 2020? Thanks.
Yeah. I don't think it's going to impact our production volumes at all. As I mentioned, we are going to benefit from the timing of the capital deployment next year. So we'll have the capital deployed and we're not expecting to pay for all of it within the year.
Okay. Thanks.
Thank you. Our next question comes from the line of Manjal Shah with UBS. Your line is open.
Yes, thanks for taking my question. Just two real quick. First on the data center solution business. Look at it sequentially, revenues were up only 2% while capacity enterprise was really strong. I was just wondering if there were any offsets in that business where revenue could stronger?
Yes. So I think the offset is to some modest degree, enterprise SSD, which as we discussed, will resume growth in the back half of the calendar year first half of the fiscal year.
And then second question on the NAND side. As most as your supply comes on from your current G fab when it comes back fully, do you think you'll be equally you'll be able to place this everywhere or would you still be?
We expect that we will have sufficient demand for the bits that we will be generating this quarter and beyond in the near term. We expect to be fully sold out in that regard.
Okay.
All right. Thank you.
Our next question comes from Ananda Woru with Loop Capital. Your line is open.
Hi, good afternoon guys. Thanks for taking the questions. I appreciate it. 2, if I could, Steve and Mike, just would love to get your updated thoughts on how you're viewing the potential for this hyperscale cycle. I think past call, Steve, you said you thought or you guys made remarks that you thought it would go until at least the June quarter of of fiscal 2020, but that potentially could go through the calendar year.
So I'd love to get your thoughts there. And then also thoughts on maybe potentially strengthen it as well. Then I have a quick follow-up.
Yes. So I think what we've talked about was we see core strength through the end of this year and it's best we can tell into the second half of our fiscal year, so first half of calendar year. Sort of anything beyond that is a little outside of our normal visibility.
Okay, great. And then any context on how on I guess on degree of strength?
Yes. I think degree of strength we've sort of talked to in our guide. So we think we're going to be above the 30% growth rate this year. So it's been strengthening as the year has progressed. And I really think it's heading back towards that average of 40% year on year.
Sort of growth.
Yeah. And I don't know if it helps a little bit, but we have been talking about second half strength in terms of hyperscale demand. I mean frankly since the beginning of the year, I would say that our level of conviction regarding that has remained pretty constant as So we've got pretty good confidence that it that previous comments that we've made in that regard remain in effect.
Okay. That's great. That's really helpful. I appreciate it guys. Thanks a lot.
Thank you. The last question comes from Mitch Steves with RBC Capital before we end with a short statement by our CEO. Your line is open.
Hey guys,
I just had a quick question just in terms of your cost controls. I think that one of the big questions I have is if you have a demand environment that's similar to let's say about a year and a half ago, do you think that you have the ability to reduce OpEx even further meaning that the operating margin could actually exceed the prior levels when NAND pricing improves?
Well, I mean, the team's done a lot of work in terms of getting the cost structure in place this year. And we're going to, as I mentioned, going to have the cost structure we want from an OpEx standpoint in the December quarter probably would have had it in September had it not been for 14th week. I don't know that we're going to see a lot of opportunity to reduce from there and continue to execute the roadmap, which we're pretty pleased with.
One of the things I'll add a little bit of color on that. I've been around a little bit longer than Bob, so I can probably add a little bit more. But I think one of the things that we learned having gone through the up and down side of the flash cycle is is that, because we're expecting that things are going to improve. We talked about a cyclical trough in terms of the flash market What we want to do is we want to drive for efficiency as we are going through an upcycle. And not add back expenses that were previously taken out through the down cycle.
That's not necessarily a promise that we will drive below the $740,000,000, but we're going to continue to drive for efficiency as the demand and pricing environment improves.
Got it. Understood. And then just one quick follow-up related to kind of the hard disk drive business. So, one of the things that I understood is that the larger 16 terabyte drives take a little bit longer to build essentially. An extra 30 to 60 days.
So your comments about no change in kind of your data center expectations, do you guys have better visibility than you had when you were selling, let's say, 8 terabyte drives or smaller sized drives or is that incorrect?
Well, in general, we have a increasingly good visibility because of the evolving sort of maturity of the cloud providers. So just the sort of operational engagement with them gives us a better view into their plans. And of course, in some instances, we've even got commercial arrangements that give us a very good feel for their intentions. We have one particular case where we actually are paid to carry some inventory for continuity supply reasons. And that gives us a very good feel for their deployment plans.
And so it's really that that allows us to do it. And as you say, as capacities grow, there is a lengthening lead time. So that's important for us to have. But obviously over time, we want to counter that lead time lengthening with test time improvements that help shorten our cycle time.
All right. Well, thank you all for joining us and we look forward to continuing our dialogue. Have a great rest of the day.
Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect. Everyone, have a wonderful day.