Good afternoon and thank you for standing by. Welcome to Western Digital's Fiscal 4th Quarter 2021 Analyst Call. Now, I will turn the call over to Mr. Peter Andrew. You may begin.
Thank you, and good afternoon, everyone. Joining me today are David Geckler, Chief Executive Officer and Bob Yulau, Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward looking statements, including product portfolio expectations, business plans, trends and financial outlook based on 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 ks call with the SEC for more information on the risks and uncertainties that could cause actual results to differ materially.
We will also make references to non GAAP Financial Measures today. Reconciliations between the non GAAP and comparable GAAP financial measures are included in the press 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 David for his introductory comments.
Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our Q4 fiscal year 2021 results. We reported solid 4th quarter results with revenue of $4,900,000,000 non GAAP gross margin of 33% and non GAAP earnings per share of $2.16 all above the guidance ranges we provided in April. The upside was primarily driven by record demand for our capacity enterprise hard drives. Fiscal year 2021 revenue totaled $16,900,000,000 and we reported non GAAP earnings per share of $4.55 Last March, I joined Western Digital with a strong conviction in the digital transformation that is reshaping every industry, every company and every person's day to day life.
At that This period has created a world that is more technology enabled and technology dependent than ever before. The increasing value and importance of data is undeniable and Western Digital will continue to capitalize on this opportunity as the only provider of both flash and hard drive solutions. Our ability to provide this diverse range of technologies enables us to drive innovation from endpoints to the edge to the cloud and combined with our commitment to delivering the highest quality products is ultimately what sets us apart and allows us to deliver strong results. As we reflect on this fiscal year, I'm very proud of what Western Digital has accomplished, particularly in light of the fact that the pandemic impacted various aspects of our company and the Supply Chain. As a team, we made the changes throughout the year necessary to improve our focus, sharpen execution and lay out the right strategic goals to place Western Digital in a position of greater strength.
To achieve these goals, we created separate business units for our flash and HDD technologies led by 2 widely respected technology leaders. As a result of this renewed focus, we accelerated our innovation roadmap, built momentum in our energy assisted hard drives We were also able to successfully navigate through the pandemic, capitalize on opportunities and continue providing dependable industry leading products that are the cornerstones of the data economy. We continue to believe that we have the right foundation for success, the right market leading products, the right customer base and the unique ability to address 2 large and growing markets. That foundation continues to underspin the strength of our results And is propelling the business forward today, even as we manage through some of the lingering impacts from COVID. And while we saw incremental demand due to the emergence Chia.
Our standout performance this quarter was primarily attributable to increasing demand from our cloud customers and the beginning of a recovery in enterprise demand, the breadth and quality of our product line and our many routes to market. We feel we are well positioned to capitalize on the large and growing opportunities in front of us. With that, I'll now provide a recap of our flash and HDD Businesses as it relates to our 4th quarter results. In the 4th quarter, demand for our was greater than we could supply in a number of end markets. In the face of both component and NAND shortages, we continue to strategically shift bits To meet customer needs while driving growth in both revenue and gross margin.
Within data center devices and solutions, Demand for NVMe Enterprise SSDs came in above our expectations, achieving strong quarter over quarter revenue growth. We are pleased with our progress in enterprise SSDs as we completed a qualification at another cloud titan and are ramping the product more broadly. Within client SSD, we experienced revenue growth as demand remains strong for notebooks and Chromebooks. This remains a large growing and important end market for Western Digital across our OEM channel and retail routes to market. Within gaming, demand from the latest generation of game consoles and our WDBLACK product line We also experienced growth in smart home devices, VR, automotive and industrial.
As the BiCS V ramp picks up and we achieve bid crossover late this year. We expect to see increased bid growth. To date, BiCS5 is our most capital efficient node in the 3 d era and the ramp across our product lines will contribute to profitable growth. We have had incredible success with BiCS4 from across cost and bit growth perspective and look forward to experience those same benefits with BiCS5, highlighting once again the successful and important partnership we have with Kyoksha. In HDD, we had our highest organic sequential revenue growth in the last decade, Driven by the successful ramp of our 18 terabyte energy assisted hard drive, growing cloud demand, A recovery in enterprise spending and to a lesser extent, cryptocurrency driven by Chia.
This impressive performance is a reflection of our data center customers' confidence in our innovation engine for capacity enterprise hard drives. Shipments for our 18 terabyte hard drive nearly tripled sequentially, highlighting our leadership in the latest capacity point and the leading edge energy assist technology underpinning it. These drives are fully commercialized and we The 18 terabyte hard drive to be the workhorse for the fiscal year. I'm excited to announce a record shipment of over 104 exabytes in capacity enterprise hard drives, a 49% increase sequentially. This is a significant achievement for the business as we have all of our largest customers qualified and are well into ramping our energy assisted hard drives.
In addition, client demand for desktop and smart video has been strong throughout the quarter due to improving OEM demand. While we are actively managing supply constraints, we expect strength in OEM to continue in the fiscal Q1. Within retail, HDD demand was above expectations as we saw consumer interest grow for both at home HDD storage and for smart video applications. There was also increased demand for hard drives due to proof of space cryptocurrencies such as Chia, Street, but we are closely monitoring the sustainability of demand. Looking ahead, we strongly believe the fundamental technology shift that I referenced earlier is a sustainable trend.
At the center of this innovation are ever increasing Intelligent Devices, which are fueling exponential industry wide growth in demand, all powered by the cloud. The ability to harness the data in both the device and in the data center is critical, highlighting the importance of our full range of storage solutions. Moreover, we believe we have the right portfolio to enable us to capture these opportunities. In particular, And as Doctor. Siva Sivaram, President of Technology and Strategy discussed in a webcast on July 15th, Western Digital's unique ability Deliver both HDD and Flash solutions drives meaningful synergies across the business in 4 key areas: market, Manufacturing Technology and Customer.
And our new operating structure gives us the focus we need to capture our full potential. While we remain optimistic, there are several factors we are closely monitoring. Most importantly, We are actively managing the continued impact of the pandemic. The disruptions to the supply chain have presented a challenge across the industry and we continue to see shortages of certain components. Additionally, logistics remain a challenge as different geographies are in various stages of reopening.
This has been a major contributor to increased lead times and may pose challenges in the future. As a result of the supply disruptions, logistics challenges and increased lead times, we continue to face additional cost pressures. Despite these obstacles, we are working diligent to continue delivering to our customers while maintaining a disciplined approach to pricing. I'll now turn the call over to Bob to share details on our financial results.
Thank you, and good afternoon, everyone. As Dave mentioned, overall results for the fiscal Q4 were above the upper end of the guidance ranges provided in April. Total revenue for the quarter was $4,900,000,000 up 19% sequentially and up 15% year over year. Non GAAP earnings per share was $2.16 For the full fiscal year, revenue was $16,900,000,000 Up 1% from fiscal 2020. And non GAAP EPS was $4.55 up 50% from last year.
Looking at our end markets, client devices revenue was 2 point and up 13% year over year. On a sequential basis, we experienced revenue growth in both hard drives and flash and across every major product category, client HDDs, client SSDs, automotive, gaming, Smart Video and Industrial. Mobile revenue was essentially flat on a sequential basis. Moving on to Data Center Devices and Solutions. Revenue was $1,800,000,000 up 44% sequentially and up 6% from a year ago.
New product ramps in this end market drove more than double the revenue growth from just 2 quarters ago. Revenue generated from our latest generation energy assisted hard drives and enterprise SSDs contributed to the growth. Our capacity enterprise hard drives grew 49% sequentially and our enterprise SSDs grew 39% sequentially. Demand for our 18 terabyte energy assisted hard drives was particularly strong, comprising nearly half of our capacity enterprise exabyte shipments. Finally, Client Solutions revenue was $977,000,000 up 10% sequentially and up 42% Turning to revenue by technology.
Flash revenue was $2,400,000,000 up 11% sequentially and up 8% year over year. Flash ASPs were up 7% sequentially on a blended basis and up 4% on a like for like basis. Flash bit shipments increased 4% sequentially. Hard drive revenue was 2,500,000,000 dollars up 28% sequentially and up 22% year over year. On a sequential basis, Total hard drive exabyte shipments increased 34%, while the average price per hard drive increased 18% to $97 As we move to costs and expenses, please note that my comments will be related to non GAAP results unless stated otherwise.
Gross margin for the Q4 was 32.9%, up 5.2 percentage points sequentially. This was above the upper end of the guidance range provided in April. Our broad routes to market and ability to proactively shift fits to the most attractive end markets enabled us to expand our gross margin by 5.5 percentage points sequentially To 35.5 percent. Our hard drive gross margin was 30.3%, up 5.3 percentage points sequentially. This also includes a COVID related impact of $32,000,000 Approximately 1.3 percentage points.
Operating expenses were $790,000,000 within our guidance range. Operating income was $828,000,000 representing a 101% increase from the prior quarter percent and the tax rate was 13.4 percent for fiscal year 2021. Earnings per share was $2.16 Operating cash flow for the Q4 was $994,000,000 Property, plant and equipment and activity related to our flash joint ventures on our cash flow statement was an outflow of 202,000,000 Partners. We expect gross CapEx for the next fiscal year to be approximately $3,000,000,000 and cash CapEx to be around $2,000,000,000 In the fiscal Q4, we paid off $212,000,000 in debt, Including a discretionary debt payment of $150,000,000 For the full fiscal year, we paid down a total of $886,000,000 Our gross debt outstanding was $8,800,000,000 at the end of the fiscal quarter. Additionally, we have already made a discretionary debt payment of $150,000,000 in the fiscal Q1.
Our adjusted EBITDA as defined in our credit agreement was $3,600,000,000 resulting in A gross leverage ratio of 2.4 times compared to 2.8 a year ago. As a reminder, our credit agreement Includes $1,000,000,000 in depreciation add back associated with the joint ventures. This is not reflected in our cash flow statement. Please refer to the earnings presentation on the Investor Relations website for further details. Our liquidity position continues to be strong.
At the end of the quarter, we had $3,400,000,000 in cash and cash equivalents. In addition, we have unused revolver capacity of $2,250,000,000 Moving on to our outlook. Our fiscal Q1 non GAAP guidance is as follows. We expect revenue to be in the range of $4,900,000,000 to $5,100,000,000 We expect gross margin to be between 35%. We expect hard drive gross margin to be relatively flat and we expect flash gross margin to improve sequentially.
We expect operating expenses to be between 755,000,000
$785,000,000
Interest and other expense is expected to be approximately $70,000,000 The tax rate is expected to be between 11% 12% in the fiscal Q1 and the fiscal year. We expect earnings per share to be between $2.25 $2.55 in the Q1, Assuming approximately 317,000,000 fully diluted shares outstanding. I'll now turn the call back over to Dave.
Thanks, Bob. As we close out fiscal year 2021, I am very pleased with how the Western Digital team successfully navigated dynamic market Gens brought on by the pandemic. While it has been a challenging time for all, we will continue to focus on driving innovation. When you combine the ramp of new innovative products into 2 very large and growing markets with our newly adopted organization structure, I am confident that our increased focus on execution will continue to propel us forward as the market leaders. Our diverse technology portfolio is the foundation of the data Economy.
And our unique ability to see the entire storage market enables us to move across the technology landscape to meet customers' needs and be the solution for their evolving storage challenges. With careful consideration of the health and safety of our employees, We're also keeping a close eye on the status of COVID-nineteen. In particular, there are certain parts of Asia seeing a spike in cases Technologies presented by the pandemic, while we drive innovation for customers and value for shareholders. Let's begin the Q and A session.
Digital. One moment please for the first question. We have a question from Joe Moore from Morgan Stanley. Please go ahead.
Great. Thank you. I wonder if you could talk about the tightness in NAND that you referenced. To what degree is that a NAND issue versus controllers and kind of other components that go into NAND products?
Hey, Joe. Good to hear from you. So it's both. There's no doubt there's shortage in controllers. And I think What we're doing is mixing the portfolio to get the most out of the controllers we have.
It's also a shortage in NAND as well. So I mean, we're mixing But there's more demand that we're able to satisfy on the NAND side. So It's really we're juggling both and balancing them to get the best result we can.
Okay. And as you guide for the September quarter, is the assumption that you're still kind of supply constrained for the whole quarter?
Yes. We're still juggling both of those things, right? We have customers looking for upside. We're juggling that. Mix is a little different from
Great. Thank you very much.
Sure thing.
Thank you. We have a question from Aaron Recker from Wells Fargo.
Yes. Thanks for taking the question and congratulations on the solid results. I
want to
ask about the hard distro business, 49% sequential In your nearline capacity shift, I'm curious how are you thinking about the sustainability of that demand? I think last quarter you talked a little bit about Purchase Agreement. And then if you can, underneath of that, also any thoughts on how significant Chia was as far as the contribution this last quarter? Thank you.
Yes. Thanks, Aaron. So, we did see very, very strong demand from the cloud. And I think The product has been very well received. As we talked about, Energy Assist is fully commercialized now.
We saw a very strong sequential growth of the AT and T product. We continue to see strong growth in the second half, working with our customers. We expect continued growth in the business. The long term agreements, I think we're I think probably the best way to think about that is we're working through the 1st cohort of those and we expect Talk about the 2nd cohort in the second half and they're becoming more and more important because getting visibility into demand It's very important, especially going forward as we're thinking about how to invest in additional head capacity for to support the growth of the business, just the exabyte growth. Chia was maybe one way to think about It was hitting us kind of right where we were on the call was I think the 1st week of it last quarter, probably a couple of $100,000,000 of
Thank you. The next question comes from C. J. Muse from Evercore. J.
Muse:] Yes, good afternoon. Thank you for taking the question. I guess I'm having a hard time reconciling the strong demand trends outlined here on the call with revenues only guided up 2% sequentially. So can you walk through, I guess, where you're seeing supply constraints, both HDD And are you seeing one more so than the other? And then perhaps to help us understand your I presume improving visibility.
Did your backlog grow sequentially into the June quarter and do you expect it to grow again exiting September? Thank you.
Yes. So it was an exceptional quarter on growth and there is tightness across both portfolios. There's no doubt about that. We were pushing the factories very, very hard to get Every drive we could out of it because there was demand for it. So when you look at it sequentially, We had a strong quarter and we are basically able to find sales for everything that we could produce.
And so going so when you look at sequential growth, I guess it's not surprising that there's not a huge amount of top line growth there. But throughout the markets, we continue to so hard drives, we see strength in the cloud. We're seeing Really good strength in kind of mid cap as well. It's not just at the top of the market. And on the flash side, again, We've got more customers looking for upside than we do the opposite.
So, the demand environment is good and we're doing the best we can to
Our next question comes from Toshiya Hari from Goldman Sachs.
Hi, good afternoon. Thanks so much for taking the question and congrats on the very strong results. I had a question on NAND. I think costs in the quarter We're up a little bit on a sequential basis. I realize cost downs on a quarterly basis can be very lumpy and you're coming off a multi quarter stretch of Very strong cost downs, but curious what you saw in the quarter from a cost perspective in NAND.
And I think in your prepared remarks, Dave, You talked about your expectations for BiCS4 BiCS5, I'm sorry, being similar to BiCS4 as you ramp BiCS5 over the next 12 months. If you can kind of set expectations and how we should think about cost downs as you make that transition, that would be super helpful. Thank you.
Hey, Toshiya, it's Bob. So in terms of the cost takedowns, we actually look at it mostly year over year and we were a little bit ahead of 15% goal we have for year over year cost declines and continue to feel good about 15% is the long term goal. We are starting the nodal transition we did this past quarter to a BICS V And we'll continue to ramp that hard through the second half. As Dave mentioned, we expect to get the crossover in the 4th calendar quarter. So I think in terms of costs, I think we're in a good place.
Thank you.
Thank you. The next question comes from Karl Ackerman from Cowen.
Yes. Good afternoon, gentlemen. I know forecasting ASPs is difficult, but your implied outlook seems to suggest a decline in hard drive pricing similar with what you saw last year. And I was wondering, should we assume that your assumption for hard drive gross margins Is driven by less favorable mix of retail drives. And as you address that question, could you discuss the mix of long term agreements you have in place today for nearline drives and whether those are negotiated both on price and volume or just volume?
Thank you.
Hi, Carl. It's Bob. I'll start and then Dave can add in. But in terms of the guide on hard drives, we are Actually guiding specifically by segment. We had really good gross margins on hard drives this quarter above 30%, and We're expecting our gross margins to be above 30% again in Q1.
So we feel good about that. And Yes, as we said, we really want to continue to improve from here. We're going to be very judicious in terms of how we add capacity Because we want to continue to improve our margins over time.
Yes. Carl, in the long term agreements, we kind of think about those as Setting a baseline for volume and price. It doesn't mean it's going to be everything that goes into a certain customer, but it Sets a baseline and gives us some visibility over multiple quarters. Like I said, we're kind of working our way through the first cohort of those and we'll be looking at The second one is in the second half of the year. And as I said, I do think they're becoming more important to give us the visibility we need On demand to make sure we make the right investments on to support the exabyte growth.
Thank you.
Hilda, can we get the next question please?
Thank you. The next question comes from Mehdi Hosseini from SIG.
Yes. Thanks for taking my question. The first one is for David. Over the past few quarters, You have exceeded your guide by 40%, 50%. And I understand there is the supply chain disruption and you want to be prudent, but there's Perhaps there is also some level of conservatism that goes into your guide.
And then on the for Bob, I understand exabyte shipment is improving to September quarter, but I do understand is why is gross margin guided flattish? Thank you.
Yes. I mean, there's always some natural conservatism, I think, in anything we do. But we Yes, there's a fair amount of leverage in the model. In this quarter, we saw when we overachieved on the top line and we get benefit from the tax rate. So And we also had a better pricing environment on drives than we expected, which was great.
We took advantage of it. I think Most out of it we possibly could. So it was a very dynamic quarter. And also we're still managing through COVID, which is there's still a lot of Supply chain issues we're working through. I mean, we've been working through these for a long time now.
And We're very good at managing that, but there is still some risk out there because of that. And so we want to be prudent around the whole business. But We feel good about where we're at. We're very happy with the quarter. Like I said, I think we got the most out of a good situation And really, really driven by strong demand on the cloud and bringing innovation to market.
I mean, I think that's the way I think about this. We brought Energy Assist to market. We've been talking about it for many quarters now. We've been giving a lot of visibility To the qualification process because it is new technology that's been worked on for a very, very long time. And I think our customers are Responding very strongly to that and we saw that in the results and the sequential capacity enterprise exabyte shipments up 49% to really a record level.
So we feel really good about where the portfolio is at and customers are really responding to it.
So Mehdi, on gross margin, I mean, first of all, we're really pleased with the 5.2 percentage point increase we had in gross margin going from Q3 to Q4. And if you look at the guidance for Q1, it's a range of 33% to 35%. So At the midpoint, we're still expecting to see improving gross margin. As I mentioned a few minutes ago, we're expecting hard drive gross margin to be above 30% again. And in terms of the flash side, it will obviously improve, But the mix is different each quarter and we're going to improve our gross margins and probably don't have quite as healthy a mix Margin and very good profitability.
Thank you. Our next question comes from Wamsi Mohan from Bank of America.
Yes, thank you and Congrats on the really strong results. I was hoping maybe I'm sorry if I missed this, but can you help handicap the magnitude of impact The top line and margins from the ongoing supply chain issues in the best way that possible. And also for the guide, Is there a way to handicap that? And Dave, you mentioned the couple of $100,000,000 benefit in the quarter from Chia. I was wondering, Do you think that that sustains at some level as you look into your guide, do you have any expectation baked in the guide as well?
Thank you.
That's Ed Sustains from Chia. I think Chia had a big impact on the channel and inventory and It's going to take a little while for that all to normalize. So I think you have a lingering impact there. We're certainly watching overall demand, but it's Tapered off from where it was, let's say, mid quarter, but clearly a space we're watching very closely. I'll ask Bob to comment as well.
It's a little hard to handicap what you're I think you're asking, which is how much upside is there if we had all the components we could possibly get. I do think what we do is with what we have, we change the mix in the portfolio to get the best we And put the product at the best route to market, whether it's in the channel or somewhere or into retail or somewhere else where we can get the best return for That particular component, but I don't know, Bob, do you have any way not to put you on the spot, but do you have any way to handicap that from a numbers perspective?
No, it's really hard To say, I mean, we as Dave said, I mean, particularly on the channel side, we shipped a lot during the quarter. So our inventory levels are If you really force us to guess on the Q4, maybe we missed out on $50,000,000 to $100,000,000 in revenue, But it's very hard to quantify what we would have been able to do had we had all the controllers that we wanted. And as we look at Q1, I mean, We're expecting to be able to manage through the supply chain challenges like we have the last few quarters. And I don't really know. It's hard to quantify before we even get into the quarter what the supply issues may be, We're going to work and it will be a very dynamic environment and we feel good about the revenue guidance we gave.
Thanks, guys. If I could just quickly follow-up, I was wondering just on the margin impact on the guide, right? So clearly, there are a lot of moving pieces over here, but if you were to think about What impact COVID, delta variance, some of the things that are happening in Asia, like how are you handicapping that And your margin impact on the guide. Thank you.
Well, certainly on the hard drive side, I'm expecting we're going to have the same logistics challenges we've had for the last year or so. So you're going to have something in the neighborhood of 1.2, 1.3 percentage points of headwind on the hard drive side. And we have to continue to work through the COVID situation from a factory perspective and supply chain perspective. And as Dave We've been doing it for a lot of quarters now, but the situation is not good in Asia and we need to really, really make sure we're careful in terms of how we work through that.
Thank you. The next question comes from Jim Suva from Citigroup.
Thank you very much. With NAND pricing going higher, spot and contract and such, Can you talk to us a little bit about your leverage or flow through to operating margins? Because I believe your costs should keep coming lower, Shipping costs were high, it's hard to see them getting worse in the next few months ahead. So maybe if you can walk us through the model of Normally, you have annual price declines and with ASPs going higher, is there more investments needed or more fix it things or talk to us about the flow through What we consider operating margin leverage.
Well, we have a lot of operating leverage in our model and I think you saw that come into This quarter, I mean, I think it was a really impressive improvement in terms of gross margin sequentially. And a lot of what we saw on the pricing side did flow through. I mean, as we said, we saw a lot of demand on the channel driven by Chia in most cases. But Across the board, we saw a good environment, and I think the team did a good job of reacting dynamically and Trying to properly price the products as we went through the quarter. So we're going to continue to do that same kind of thing as we move forward.
And we are going to see cost takedowns. We had very good cost takedowns in Q4 on both the hard drive side and on the flash side. And As we keep price flat or even increased price, then that's obviously going to only help in terms of operating leverage. Thank you.
Thank you. Our next question comes from Patrick Ho from Stifel.
Thank you very much. Dave, in terms of the activity you're doing with cloud and hyperscale And the pickup you're seeing there, can you talk about any qualitatively new customer wins, whether it's cloud, hyper Scale or data centers. With the new 18 terabyte drives, can you at least qualitatively talk about the adoption rate and whether you're seeing Where you're adopting from existing customers who are transitioning or even new customers that weren't previously on your mass capacity Storage Drives.
Yes. So at this point, I think it's where they're at in the architectural evolution of their data center of how they're adopting the technology.
As far as qualification, so first of all,
I mean, if you're building a Technologies. As far as qualification, so first of all, I mean, if you're building a cloud, you're most likely our customer. Hard drives are The lion's share of storage in the cloud. But we're seeing wide adoption, I guess, is the only way I can say it. I mean, it's our customers Different customers will be at different stages of their architectural evolution.
Some are going to 'eighteen as fast as they can. Some are Working through a 'fourteen transition, let's say, in the second half of the year and then we'll move to 'eighteen, some are going through 'sixteen. So At this point, it's just a question of how they're all transitioning their data centers. Again, we saw We saw really strong growth throughout the quarter. As Bob said, it's nearly half of our exabyte ship capacity enterprise exabyte shipments were on 2018.
So We feel really good about where the product is. And like I said, the innovation of Energy Assist has been fully commercialized And it's been well received by our customers.
Great. Thank you very much.
Sure thing.
Thank you. Our next question comes from Harlan Sur from JPMorgan.
Good afternoon. Thanks for taking my question. In addition to the SSD controller shortages, we've heard of tight HDD controller and preamp chip supply as your ASIC semiconductor partners Pretty constrained and lead times are pretty stretched. And so if the team had more HDD controller and pre amp supply, would you be able to ship more HDDs here in the December quarter or is more of the HDD shipment constraints in September being driven by other component constraints or Media and Head Manufacturing or just potential pandemic related operations disruptions?
Harlan, this is Bob. We're basically running at full capacity in the September quarter on the hard drive side. So it's not easy to get the parts That's definitely true. But in the September quarter, I don't see it as a big factor. We'll How that plays out as we get to the December quarter and beyond?
Yes. Harlan, I was going to say the same thing. I mean, we've got Folks in the factories working overtime and to get every drive we can out. I mean the team is obviously balancing the supply chain issues to get all the components we need, but we've got that covered in September. And so keeping again, these are in places where COVID is a big deal and we've been Really good about managing through that, but something we got our eye on, but we're really pushing very hard to get all the components we can All the drive we can.
I appreciate the insights. Thank you.
Sure thing.
Thank you.
The next question comes from Tom O'Malley from Barclays.
Hey, guys. Thanks for taking my question. I just want to circle up on a comment you made earlier. You said that Chia had a big impact on the channel. I'm looking at inventory.
Inventory days are flat on a dollars basis, down on a days basis. Can you kind of comment on the mix of inventory? I would assume with some of the HDD activity you saw during the quarter, the channel has kind of been wound down Is there any color you can give on the mix of businesses within the inventory that you have this quarter?
Yes. In terms of our inventory, the turns are up Quite a bit on the hard drive side and I'd say relatively flat, maybe even slightly worse on the flash side. And that's yes, we're going through a nodal transition. It's not a big surprise there. So and the flow through as you saw was up significantly during the quarter.
Thanks guys. Sure. Thank you.
Great. Thanks for taking my question. My question is on capital intensity. You talked about gross CapEx for fiscal 2022 being $3,100,000,000 And that would be roughly 15% of fiscal first quarter revenue run rate. Is that the right capital intensity we should be Thinking about maybe you can comment on both HDD and NAND, that will be great.
And what kind of assumptions are you expecting in terms of bit growth coming out of the main side of things. Thanks.
Yes. So a few questions in there. So first of all, in terms of CapEx, we exited FY 2021, around $3,000,000,000 in gross CapEx, and that's what we're expecting again in FY 2022. We are well on our way in terms of the ramp on BiCS V in terms of the capital investment. And We'll have to obviously continue to invest in both businesses.
We've got 2 growing businesses and they are going to require capital going forward. On the hard drive side, we're at the point where we can no longer transition assets from the client side of the business to the capacity enterprise business. And so that means we have to be pretty cautious in terms of investments we make. That's part of why we've done some of these long term agreements. And we're going to continue to be very careful in terms of capacity we've put in place.
And on the flash side, the goal As we've been saying is to really grow bits at the rate that the market's growing and we think over the long term we'll be able to do that.
Thanks.
Sure. Thank you.
Thank you. The next question comes from Shannon Cross from Cross Research.
Thank you very much. I have maybe a bigger picture question. I'm just Wondering how are you thinking about the inflationary environment? Are you hearing from any customers that there's some pushback because of elasticity of demand Given price increases and then just internally, how are you thinking about managing higher costs and not necessarily next quarter, but just in general as we face more inflation. Thank you.
Yes. It's a good question, Shannon. And we're definitely facing Inflationary pressures across the board. We've talked about the semiconductor components already on this call and we're seeing lead times extend out. We're team.
Challenges on the cost side as well. And we're going to we think we're going to face that across a number of different commodities. And that's a discussion we need to have with our customers as well. And I think most of them are also facing inflationary pressures. So it's not Something that you can work out in a single quarter, but I think over time, we've got to make sure we're getting Obviously, an adequate return on the investments we're making from a CapEx standpoint and the costs that we have in each of the products.
Okay. Thank you. Sure. Thank you. Our next question comes from Nick Todorov from Longbow Research.
Yes, good afternoon, guys, and congrats on great results from me as well. Thank you. Dave, I think
Yes, please go ahead.
Yes, yes. You talked about more customers looking for upside on the NAND side In the September quarter and it sounds like you're pretty constrained, but if I look at your guide, it implies at best a modest low single digit and ASP increase. I wonder why you're not able to get better pricing leverage on demand. I think you talked about mix changing in the September quarter. If that's the big driver, can you please give us more detail?
How do you see the mix shifting on the NAND? Is there any lumpiness in the enterprise SSD mix in the September quarter? Thanks.
Yes. No, I think you got it. I mean, again, we're running a portfolio across 5 4 or 5 major pillars, enterprise SSD, mobile, consumer and the anchor of the portfolio client SSD and then of course positions in gaming, IoT, Automotive. But every quarter, the mix is going to be different across that. And obviously, the pricing Is changing at different rates across those markets.
We're clearly trying to shift as much as we can into the higher margin markets. But every quarter, the mix is going to be a little bit different. And depending on what our commitments are, We have commitments to customers as to how much we're going to supply in any given quarter. So, when you put that all together, you're thinking about it.
Got it. Thanks. Good luck, guys.
Thank you.
Thank you. The next question comes from Ananda Baruah
Congrats on the strong results. I guess it's really the question really is around the margins and structural margins on those sides of the business. Do you think over time structurally the margins can move higher from here? And what would be sort of the pushes and pulls Or the sort of the dynamics like what would things have to look like, what would have to get done for both sides of the business for that to happen and kind of structurally higher Meaningfully, nicely structurally higher. Thanks a lot.
So I think the answer to that is I don't think the answer to that is yes. Let's go through each business. On the drive side, we saw a big step up this quarter, driven by a number of things. We've been talking about the 18 terabyte Capacity point is much better for us for a number of quarters now and we saw that play out. We obviously got some benefit from Chia as well.
But Predominantly innovation led story from my perspective. But we believe business inside our company needs to be more profitable. We've talked about it several times on this call. We're now looking at This transition from client capacity to capacity enterprise, nearliner enterprise Digital drives. That era is coming to an end.
It's been a long one. It's taken a decade to go through that transition. But When we look at the exabyte growth going forward, that's going to take investment and we want that investment to be fully justified. So, and again, it's no surprise to me that now we're talking about these more longer term agreements. And again, we're early days in those, Those are the conversations with customers.
I remember when I came in this business, whatever, 5 quarters ago, Everything was transacted on a quarterly or even within the quarter basis and now we're moving to in parts of the business multi quarter basis and I think that will continue Because we need more visibility into demand to make sure we can continue to fuel the growth of the cloud. I think The cloud is an incredible technology, seminal technology of our era as I like to say and Continuing to fuel the growth that is very important and 35% exabyte growth is going to take investment and I think that's going to take we're going to want to see The internals of our business be able to support that. So on the flash side, we're going to and just one final comment on that. We're also Continuing to innovate in hard drives and drive costs down as well. I think we thought we think about cost downs more In the flash business, but we also continue to drive them in the drive business.
So we have that dynamic working as well. And on flash, We all know about how dynamic the pricing environment is. We feel very good about our technology roadmap. We've talked about that. We're at the transition point to BiCS V.
We feel good about that node as we transition to that over the next couple of quarters. We'll see our bit growth accelerate and that foundational investment with Clearly, a better pricing environment as we're seeing helps margins in that business. We expect it to be better next quarter. That's the way we're guiding. And as we look even beyond the second half and we look into next year, we continue to see a strong demand environment that's getting out there pretty far.
But From what our customers are telling us of what they think the demand is going to be for their products, Like I said, we're all more technology dependent than ever. We continue to hear good things about what they're going to be asking for next year. So structurally, we think With the technology, with the innovation we're driving in both portfolios, that puts us in a good position
Thank you. Our next question comes from Srini Pajjuri from SMBC Nikko Securities.
Thank you. David, on the enterprise SSD front, I think you said it grew 39% quarter on quarter, obviously very strong quarter. Just curious It's driven primarily by end demand and if there were any new customer ramps As well and also if you could talk about if there was any contribution from Chia on the SSD side as well, I think that will be helpful. Thank you.
Yes. The first one, just quickly, very minimal contribution from Chia in the enterprise SSD market. Yes. We are happy with the sequential growth of the product and we did complete a qualification at another Titan, which is something we've had our eyes on for a while and we've talked about. We haven't started ramping there yet, but we'll see that in the second half of the year.
We also saw Good demand in the channel on enterprise SSD. So, we qualified With one of the very big players and we see continued growth there. We're seeing good acceptance in the channel and growth there and now we're layering in additional major customers as we go into the second half of the year. So we feel good about how the product is being accepted. Again, A lot of innovation in our product.
We've been talking about that for many quarters, again, giving visibility into the qualification process and now we're well into the ramp and feel good about where we're at and where it's going and how it's being accepted by our customers.
Thanks, Dave.
Thank you. Our next question comes from Mark Miller from The Benchmark Company.
Just was wondering the SSD space, do you feel you're picking up share? I suspect we're picking up share, yes, as we grow. So I don't think the market grew sequentially 39%. Again, we're focused on profitable share gains, but this has been a focus for us to get that product introduced. It's a very attractive market and get qualified in as many places as we can.
But yes, we're going to continue driving for growth quarter over quarter. Thank you.
Thank you. And the last question comes from Tristan Gerra from Baird.
Hi, good afternoon. You've given some puts and takes about gross margin criteria for Harvest Drive. How should we look at the potential for gross margin longer term? You've mentioned you're already at full capacity. Can you go higher given new customer mix and given the purchasing power that some of your large data center customers have Without COVID expenses is a longer term 35% outlook possible.
If you could just provide a bit More color on what you think the catalyst going forward.
Yes. I mean, I think as we've talked about, We're in this period in the hard drive business where it's been transitioning for a long time from a business that was client dominated to a business that is Cloud dominated is, I guess, one way to think about it. And if we look at the utilization of our factories, you can see Very clearly, year over year, the percentage of drives that were headed for the cloud versus the ones that are headed for clients has been steadily shifting Over a decade and now we're at the point where we're looking at investments in Both in heads and also when you build a bigger drive, it takes longer to test, all those kinds of things, testing capacity in the factory. So yes, as we go through those conversations, it's really important to understand from our customers what growth is going to be we see 30% to 35% exabyte growth in the cloud for the foreseeable future. We want to make sure that they see that same amount.
And as we align on that growth and we invest in our business to support it, I think that's where this idea of long term agreements come In place to help drive the profitability for the business, we think the innovation is delivering I mean, it starts with delivering A product that is very solves our customers' problem and we're delivering a very strong TCO model with every generation of this product that we build. We're driving a lot of innovation. We talked about it here with Energy Assist, which is something that we've been working on for quite some time. And quite frankly, it's a good accomplishment for the team a great accomplishment. It feels good to take something that was an idea many, many years ago and now turning into turn it into something where The largest customers in the world are betting their business and their data center on that innovation.
And so to continue to fuel that innovation engine, We've got many, many innovations lined up to continue to drive the portfolio, and making sure we can invest in that and meet the growth Our customers getting the economics of that right is very important.
Great. Thanks for the additional color.
Sure thing. Thank you. All right, everybody. Thanks for your time today. We really appreciate it.
We'll be seeing you throughout the quarter.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.