Western Digital Corp (WDC) — Q2 2021 Earnings Call Transcript

Thank you, and good afternoon, everyone. Joining me today are David Goeckeler, Chief Executive Officer; and Bob Eulau, 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-K filed 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 release and other materials that are being posted in the Investor Relations section of our website. With that, I will now turn the call over to David.

Thanks, Peter, and thanks, everyone, for joining us today. To start, our second quarter results were at or above the upper end of guidance ranges we provided in October. We reported revenue of $3.9 billion and non-GAAP earnings per share of $0.69. These results reflect continued growth in retail in what was a seasonally strong quarter. In addition, stronger demand for our client SSD products as well as our notebook and desktop hard drives contributed to upside in revenue. We continue to work hard delivering for our shareholders, customers, partners, and communities. We adapted to changes in our business and continue to manage the ongoing challenges presented by the pandemic. Our results reflect the benefits of having such a diverse and deep product portfolio, fantastic franchises, a vast customer base, and now an optimized organizational structure. As a result, we have a solid foundation to capitalize on the significant growth opportunities in front of us. I'm excited about the progress we've made over the last few months in the recently established Flash and HDD business units. Both franchises are led by exceptional leaders who are highly focused on executing their respective strategies by establishing their teams, evaluating technology and product development, engaging with customers, and analyzing and effectively capturing target end markets. As we've highlighted in previous earnings calls, we are committed to delivering on our product roadmap, including advancing our product transitions. Notably, we are making great headway with the product transitions of our energy-assisted hard drives and enterprise SSDs. As you all know, these transitions are multi-quarter journeys, but I'm pleased with our progress, which I'll detail shortly.

Thanks, Dave, and good afternoon, everyone. As Dave mentioned, overall results for the fiscal second quarter were at/or above the upper end of the guidance ranges we provided in October. Revenue was $3.9 billion, up slightly sequentially, and down 7% year-over-year. Growth in Client Devices and Client Solutions was mostly offset by a decline in our Data Center Devices & Solutions end market. Looking at our end markets. Client Devices revenue was $2.1 billion, up 10% sequentially and 19% year-over-year. Work, school, and game from home trends continue to drive demand for both our flash and hard drive solutions for notebook and desktop applications. In notebook and desktop, our flash and hard drive revenue each grew over 20% sequentially, highlighting the power and value of our portfolio for our leading OEM customers. Demand for our smart video hard drive was much stronger than expected, growing 30% sequentially as demand continued to recover from the bottom set in fiscal fourth quarter of 2020 during the height of the COVID-related lockdowns. Lastly, Mobile revenue was down sequentially, with growth in recently introduced 5G phones offset by dynamics within China. Moving on to Data Center Devices & Solutions, revenue was $807 million, down 29% sequentially and 46% from 1 year ago. Revenue from both capacity enterprise hard drives and enterprise SSDs were down sequentially. As Dave mentioned, we had an unexpected delay in a qualification at a cloud titan. As a result, during the quarter, our capacity enterprise drive shipments were negatively impacted and inventory grew. We have since completed this qualification. And as Dave noted, given that a separate cloud titan qualification was completed ahead of schedule, we now have 3 of the 4 cloud titan qualified on our new energy-assisted drives. In addition, we are beginning to ramp our second-generation enterprise SSD products through calendar year 2021. Next, Client Solutions revenue was above expectations at $1 billion, up 19% sequentially and 6% from a year ago. The work, school, and gaming from home trend benefited both hard drive and flash-based products, again, highlighting the powerful go-to-market synergies of this channel. Turning to revenue by technology. Flash revenue was $2 billion, down 2% sequentially and up 11% year-over-year. Flash ASPs were down 9% sequentially on a blended basis and down 6% on a like-for-like basis. Bit shipments were up 7% sequentially. Hard drive revenue was $1.9 billion, up 4% sequentially and down 20% year-over-year.

Thanks, Bob. As we discussed, Western Digital has worked hard to position ourselves to address this unabated growth in data and therefore, storage technology. Thanks to these efforts, the market has aligned favorably for us. We're running two industry-leading technology franchises in end markets that will only continue to grow as the digital transformation further accelerates. We know that our HDD business is less encumbered by workload mix shifts today and that our flash business is becoming more and more driven by applications. We also have made the right investments in our joint ventures with Kioxia, which are a strategic differentiating asset. It is an extremely exciting time for our company as we are focused on capitalizing on the tremendous opportunities in front of us. Accordingly, we will continue building momentum behind our business unit strategies, company positioning, strong brand, and industry-leading portfolio. I'll now turn the call over to the operator to begin Q&A.

Yes. Thanks for taking the question. Just kind of on the nearline hard disk drive market, I know that you talked about some puts and takes with regard to qualification cycles on the 18-terabyte. But I guess the question first of all is can you help us understand what capacity shipments did in the quarter for nearline? And just help us understand the kind of the shape of the ramp that you expect on nearline as far as capacity shift over the next quarter, a couple of quarters, which – however, you want to kind of discuss your expectations on APTV's ramping going forward? Thank you.

Yes, thank you, Aaron. I would say the mix last quarter was primarily 14 and 16, with some 18s included. As mentioned, one of the major projects we were working on completed in the first week of the following quarter, and we anticipate that to start ramping up. As I noted earlier, the cloud digestion is easing. Different key players are emerging from this phase at varying speeds. The initial ones are already beginning to show progress, and we expect more to follow as the year progresses. Our main focus is on the transition to the 18-terabyte capacity, which we anticipate will take place in the middle of the year, and this is positive for our business. Essentially, that’s our perspective.

And what did capacity shipments during the quarter?

Well, I mean, we don't split it out specifically, but you can see that on the Data Center Devices & Solutions, we were down quite a bit, and that was driven both by the capacity enterprise as well as enterprise SSD.

Okay. Thank you.

Sure.

Thanks, Aaron.

Great. Thank you. Thanks for letting me ask the question. In terms of the NAND gross margins, the improvement that you saw in the December quarter sequentially with prices down 6% like-for-like and the improvement that you're seeing in Q1, where is that coming from? And can you remind us where you are with the start-up expenses from the new fab rolling off?

Yes. As we mentioned last quarter, we are observing an improvement in pricing within the more transactional markets. We will see how this impacts the negotiated markets in the coming quarters. Throughout the quarter, we noted enhancements in retail and certain areas of the channel. Regarding K1 costs?

Yes, I can update you on K1. So, I think I had originally guided to around $50 million in K1 startup costs this quarter, and we actually came in around $40 million. This quarter, the quarter we're now in, will be at normal production volume. So, we're not going to continue reporting start-up costs because we're really not in start-up mode anymore.

Great. Thank you. And then in terms of your inventory level, I think you said that the inventory increase was mostly on the drive side. Where are you in terms of your internal NAND inventory?

The flash inventory has remained stable over the past few quarters. We haven't significantly increased inventory on the Flash side, but as we mentioned, we have built some inventory in preparation for the upcoming shipping of the new capacity enterprise drives, and we expect to see increasing volumes as we progress.

Great. Thanks so much.

Thanks, Joe.

Thanks.

Yes. Thank you. Thanks for the color on the data center side. I was wondering, just given your comments around the qualification timing, can this segment grow in fiscal second-half versus fiscal second-half of 2020, especially given that the comps sort of get tougher by the end of the fiscal year? And your comments on HDD gross margins sort of worsening sequentially, is this basically – are we waiting for one more quarter, basically the end of the fiscal year before we see HDD margins pick up as you get material pickup in AT&T? Or will these cloud sort of abatement plus the OEM pickup help by your fiscal fourth quarter? Thank you.

Okay. Let me see if I can decompose that a little bit. Yes, we expect a pickup in – as we move throughout the year. I think your call on the gross margin – we see revenue coming back as we move into next quarter and then getting better throughout the year. We kind of guide one quarter at a time. I don't have the year-over-year number on the top of my head. But you're right on margin. We kind of expect one more quarter of maybe flat to slightly down margin on the drive side, and then we'll start to see that accelerate, especially as we move through into higher percentage of AT&Ts.

Okay. Great. Thank you.

Hey, thanks. Thanks so much for taking the question. I wanted to follow up on gross margins in your ECD business, David. So again, as you mentioned, this quarter is going to be flat to down. As you move forward with mix improving, hopefully, COVID costs abating at some point, maybe some of the costs related to energy assist going away. Do you think getting back to 30% over the next year or so is a reasonable target? Or is the margin profile structurally different today versus a year ago, two years ago? Thank you.

No. I think you hit on the issues there. I mean, first of all, COVID hit last quarter was about 1.7% of a headwind in that business. In mix, we talked about retail being multi-year high. We believe as we get – we go into 18, we have a path back to the kind of margin profile you're talking about. We just need to get the mix better. I mean, COVID's a bit of a wildcard. How fast the – it's really the freight costs, how fast we can get freight costs to come down. It's been obviously pretty sticky about where it's been for the last couple of quarters. And then as I said, as we move into 18 and we see the cloud digest – fully come out of cloud digestion, I think, you'll see a path back to the more traditional margin structure.

Got it. Thank you.

Yes. Thanks for taking my question. On the Flash side, can you please provide some color as to what percentage of flash revenue were driven from gaming? And how do you see that trending for the rest of the year? And I have a follow-up.

Yes. Gaming is still important, though I think it's not as significant as it was last quarter, as there was a lot of buy-in in anticipation of the initial builds. I would say it's down a little bit sequentially, but it's still a great market for us because we can engage in both the console side and retail with WD Black, which has been very well received in the retail channels. This is part of the reason the retail business is doing well, and the margins are good as we're investing in the brand alongside the product. So, while it's down a little bit sequentially, we still expect it to be a strong market as we progress through the year.

Gotcha. And then one additional follow-up on the flash side. Last earning conference call, you alluded to the fact that you are a couple of quarters away from finalizing contracts with OEMs and as prices or supply demand at Titans, do you see OEMs stepping up and signing longer-term contracts, or is this just going to be a guesswork as to how they plan for, especially like one or two quarters out?

Yes. I think what I talked about last quarter was actually a qualification at the OEMs and that's a multi-quarter activity. The pricing is negotiated on a quarterly basis, and there's a long-term agreement of, let's say, on a year timeframe of what the target share is, but that can move around a little bit. But that gives you a sense about how the market works.

But how do you see the dynamics like today compared to like October conference call?

Of which part, the call, or the share, or the pricing?

Well, the qualification and how I think as you look into the remainder of the year, do you see more of a pricing power coming back to the suppliers, or is it still going to be a hard negotiation?

The qualification pertains to our second-generation NVMe enterprise SSD product, which is quite complex. Last quarter, I mentioned we were set to begin the qualification process this quarter. In October, I stated that we planned to kick off qualification in our fiscal second quarter, which is currently in progress. This is a multi-quarter process, and if it goes well, it will enhance our ability to supply that product to major OEMs. As I mentioned in the prepared remarks and have been discussing for a few quarters, I view the qualification as the final phase of the development process. While timelines can fluctuate, the fact that it's in progress is a positive indicator as we strive to broaden the total addressable market for that product.

Got it. Thank you.

Good afternoon. Thank you for taking the question. A question on the NAND side. Can you speak to what's driving the better than seasonal demand in Q1? And then beyond March, how are you thinking about changes in your mix? And what impact that will have on your gross margins? Thank you.

I'll provide you with a perspective, which also reflects Bob's views. We've been discussing retail for several quarters now, and it has been performing well. The team has done a fantastic job launching new products like WD Black in the gaming segment and ArmorLock for security and enterprise SSDs. This progress continues, and we anticipate there is momentum. We still see strong demand for PCs and notebooks. Additionally, I believe we achieved a significant milestone this past quarter by completing the qualification of our second-generation NVMe enterprise SSD product at a major cloud provider, right at the end of the quarter, allowing us to start shipping, which is also beneficial.

Yes. I don't have much to add. I think retail remains strong in the work-from-home environment, and the enterprise SSD business will continue to grow.

And just to follow-up on how you're thinking about mix beyond the current quarter and what the implications are for margins?

We are maintaining a balanced portfolio and are focused on enhancing our position in enterprise SSD. This has been a significant goal for the company even before my arrival. Our second-generation product is performing well, with around 150 qualifications, including one of the major cloud players, which is a significant achievement. Client SSD remains a strength for us, and we have discussed gaming in our previous quarter's call. In terms of mobile, we have a solid presence but recognize that we are somewhat under-indexed in the market, although it is crucial to remain active in that sector. Therefore, I anticipate a balanced mix across these categories. Additionally, we are incorporating some IoT and automotive applications, which rounds out most of our portfolio.

Thank you.

Thanks for taking my question. The question I have is on NAND. It's good to see NAND margins improving and price decline moderating. How do you see industry supply-demand balance for the rest of the year maybe compared to what you think a quarter ago? And how do you see your own bit shipment growth this calendar year and kind of the shape of that for the rest of this year? Thanks.

I guess what we would say about investment in the industry is we're pretty much where we've been, which we think the industry has been pretty good about this. I mean, there's a lot of variability on investment on supplier by supplier, capital cycles vary, even no transitions within each supplier vary about how much capital require – how much capital is required. In our case, BiCS5 is a very capital-efficient node. BiCS6 will require a little more capital. We'll talk about that when we get there. So we still see a pretty good balance. We see strong demand drivers. We see I think we see bit growth this year, probably low 30s, low to mid-30s, and we see demand above that. So I think nothing we're seeing in the environment surprises us tremendously.

Okay. Thanks.

Thank you very much. Dave, maybe qualitatively, now that you've been at the company for almost a year, without, I guess, financial quantification, with the two businesses now separated, where do you see the most improvement in the time that you've been here so far? Is it in the R&D side of things? Are you more efficient there, manufacturing supply chain? Where are you seeing the most gains? And where do you think, as you go into your second year, you see more opportunities to improve?

It has been an extraordinary ten months, especially to join the company at the onset of a global pandemic, which hasn’t occurred in our lifetime. I am impressed with how the company has responded to that challenge. In the early days, we faced various supply-side issues, but those have been resolved, and operations are now running smoothly. We have made significant strides in understanding the synergies within our portfolio, particularly on the go-to-market front, allowing us to offer a broader solution to our customers. We have a strong grasp of our customers' needs, as we operate in both the drive and flash markets, despite the differences between the two products. The development of our roadmaps is crucial, and we are prioritizing technology by clearly separating those in the business unit. Although it's still early days, having two accomplished leaders join our already strong team has positively influenced roadmap clarity and our R&D investment decisions, enhancing customer engagement to drive our portfolio forward. I believe we have made excellent progress and this will only improve as these leaders and their teams become more established. Additionally, I want to emphasize the importance of our partnership with Kioxia. Despite the travel limitations, I have spent considerable time with their leadership, and our teams collaborate daily. This partnership works exceptionally well and is a tremendous asset to the company, and I have greatly appreciated being part of it in these past ten months.

Great. Thank you.

Hey, how are you doing, sir? I have two questions. I'm going to focus a bit more on the hard disk drive side. First, regarding the margins, if I look at the current business run rate and compare it to 2018, it was around a 27% gross margin on roughly $2 billion of revenue. If I assume that COVID-related challenges and the supply chain issues are about 100 basis points of headwind to gross margin, am I approximately correct? I'll start with that, and I have a follow-up after.

Yes, I think it's closer to 170 basis points of headwind.

So, the number would have been kind of 27.2, 27.3, in that rough range?

Yes. Yes, that's correct.

Okay. And then secondly, you guys used to disclose a little bit more detail on the non-compute units. I think those were up pretty significantly Q-over-Q, 8.2 going to 10.1. I'm just curious if you can give us any sort of like directionality in was it more consumer electronics or was it more your branded units are doing better for the quarter?

I don't want to get too much into the specifics. So, one of the things we did mention was smart video was up quite a bit sequentially, and that's in the non-compute area. But we're just on the hard drive side, on client and notebook, we did really well.

Hey guys. Thanks for taking my question. My question is really centered around the transition of the two CloudTitans with the HD qualifications. You said one slipped a little, one came in a bit earlier. Can you talk about what the mix of those transitions kind of net? You talked about obviously, the gross margin slipping into the next quarter, but then kind of recovering. So, we're seeing a bottom there. Do you think that the out quarter is benefiting from this with the one coming in earlier, or do you think it's a negative transaction in the near-term? I just want to get a little bit more color about how it affects the business into March?

Yes, last quarter, we had some business we anticipated shipping on 18 that didn’t happen because the qualification wasn't completed, but it finished in the first week of January. Some of that business had to be redirected to other capacity points and suppliers. Additionally, there was another qualification we didn't expect to complete until the end of this quarter, but it actually wrapped up smoothly last quarter. Looking back, things could have been better if the first qualification had finished on time. However, now that both qualifications are behind us, we are positioned to start shipping 18s to both customers as they increase their capacity. Does that clarify things?

Good afternoon. Thanks for taking my question. Regarding the gross margins on the flash side of the business, it's encouraging to see the improvement in gross margins in December. As you mentioned, start-up costs will be decreasing in the March quarter, providing about a 150 to 175 basis points gross margin boost to NAND. Additionally, we're observing better pricing trends and potentially benefiting from the higher margins from your initial shipments of Gen 2 NVMe products. Are gross margins expected to approach 30% in the March quarter? Could you clarify the factors influencing gross margins for NAND?

Yes. So, Harlan, I mean, you talked about a number of the moving parts. And we're definitely, as I said earlier, expecting gross margins to improve on the flash side. We saw in the last quarter, I'd say, very good pricing trends in the transactional markets. The OEM markets, we negotiate one quarter at a time. So it's a little hard to say how much we'll see there. And then we're continuing to do a good job on the other part of the equation, which is cost reduction. We still think we're very confident in our 15% year-over-year cost decline. So I think it's just a question of how pricing plays out as we move forward. But I think we're in a very good place.

Yes. Absolutely. And just a follow-up. So, many of the suppliers of your HDD and SSD controller chips are seeing tightness in wafer supply, assembly and test capacity. Are your shipments here in the March quarter potentially being somewhat held back because of lack of controller availability from some of your merchant or ASIC controller chip suppliers?

Yes, there's no doubt things are tight, and we're not immune from that. I mean, clearly, we have our financial plan covered with components. But when you do go looking for things from the semiconductor supply chain, it is tight right now. So we'll see how it plays out during the quarter.

Yes. Thanks, guys. Good afternoon. I understand, David, I think you talked about seeing continued momentum in retail and PCs. But maybe we can extend a little bit. I would like to hear your thoughts about how you see those trends persisting as we look forward. I know visibility is probably not as good. But I just want to hear your thoughts, how you're thinking as we go into the following quarters, the demand from PCs and retail and work-from-home specifically?

Yes. I mean, it's obviously a very dynamic environment with the pandemic and seeing resurgence in certain parts of the world and more lockdowns in parts of the world. So it's hard to call it more than one quarter at a time. We guide one quarter at a time, but I think I understand your question a little bit broader. I guess what I would say is in retail, we've really just dialed in like how to deal with this environment we're in and the dynamic nature of it. I think that the new products that we've been launching have been well received. Again, I mean the WD Black gaming product, we're doing co-branding with other folks. We introduced a product around security and storage that I think is going to be good for us. So a lot of investment in the brands, which are strong, makes sure we keep share of voice high. And it has been an area where we've been able to get some momentum and keep some momentum, I think, going a couple of quarters back. So but it is, to your point, it's very dynamic given the COVID situation and the lockdown. So we'll see above seasonality performance. Q1 is a seasonally weak quarter for retail, but we're planning to do a little bit better than that.

Hi, there. Hey, good afternoon. Thanks for taking the question. Yes, I guess if I could just go back to the gross margins on the flash side. Longer-term, intermediate and a longer-term view, you guys see a path to sustainably greater than 30% margins. I think you've talked about it in the past. And if so, what are the kind of signpost or mechanisms that need to manifest to have that be the case? Appreciate it.

Yes. I guess, I can start with that. And again, as we all know, a lot of this depends on the supply and demand and what's going on with the industry. We've been encouraged, as we said about the pricing in the transactional markets over the last few months. As we move forward, we're pretty confident on the demand side for the year. I mean, there's just obviously a big demand on the mobile side. We think we're going to see very good demand on the enterprise SSDs. We've already had a strong position on client SSDs. So we feel pretty confident on the demand side. And we think the supply side appears to be pretty rational. And I think if that's the case, we should see margins improve from here. But I don't want to put a particular milestone or a particular goal out there, but I think it's going to be a pretty good market in 2021.

Yes. I think we've been signaling that about 2021 for a couple of quarters now. Again, we don't want to get ahead of ourselves. We do have more exposure to the transactional markets, which helps when things start going in a positive direction, but it's got to flow through to the negotiated market still, and we'll see how that plays out over the next couple of quarters. The other thing I'll highlight on this is really important, and Bob touched on earlier, is just make sure we maintain our cost position. And as I've highlighted a couple of times in the prepared remarks and what I said earlier, with our partner, Kioxia, we're the largest provider of NAND flash memory in the industry. We jointly develop our technology roadmap. So we're heavily invested in that. We believe we've got tremendous technology that allows us to deliver the power performance bits we need. You see our technology is lower layer count than others. That means it's a more efficient process. So we feel good about that; that sets us up to continue to drive the 15% year-over-year cost declines. So we got to make sure we keep our eye on that side of the equation as well.

Hey, Jim.

Thank you. Hello. You have focused more tightly on your two segments, the flash and HDD segments, and it seems that the leaders have been working on these areas for some time. Are we beginning to see the results of their efforts now, or are they still in the process of implementing changes and the benefits are yet to come? Historically, Western Digital has been known for executing well at times while experiencing some setbacks at others. I'm trying to understand if we are halfway through the implementation of these changes, or if we are now at a stage where we can expect results from their findings and alignments going forward. Thank you.

Yes, Jim, I believe that whenever you add leaders to your business who manage multi-billion dollar portfolios in the technology sector, you will experience immediate benefits. These senior business leaders are actively engaged with the portfolio and customers daily, reviewing engineering products and providing a well-developed perspective focused on integrating various components into a cohesive business. We are already observing the advantages of this. They will also begin evaluating our product roadmap to ensure proper alignment and strategic investments. The technology roadmap reflects the future value of the company, indicating market involvement and investment areas, which have different timelines for returns. With an established technology franchise, involving another leader can facilitate customer engagement and enhance team guidance at a senior level, leading to immediate improvements. Additionally, we are making decisions about products that will launch in two or three years, so their role includes integrating across time horizons to yield optimal results from our investments. We have noticed benefits already, and there will be more to come. Expect clearer execution and a portfolio optimized for the best return on our investments.

Yes, good afternoon. Gentlemen thank you for letting me ask the question. Hi. I had a question just on, I guess, your Hard Drive business. Your peer spoke about a recovery in data center in the first half of the year. And I'm curious if that resonates with you such that you could achieve 35% exabyte growth for your nearline business in fiscal 2021. And I was also hoping you could juxtapose what you're seeing across on-prem and cloud within that nearline business? And then I guess, thirdly, if I may, I was hoping if you can achieve that 35% exabyte growth, can you do that with your existing capacity today or if you could touch on your capacity expansion plans as well? Thank you.

I believe your first question was about the current state of the enterprise on-prem market. I'd say it seems to be stabilizing in the enterprise OEM sector, which aligns with the feedback we're receiving from our customers, indicating it's performing on or above our forecasts. However, it hasn't returned to pre-COVID levels yet. It's easier to evaluate future trends than to determine where we've been, and this situation is understandable given the current environment. Regarding cloud services, different providers are recovering at varying rates throughout the year. In terms of exabyte growth, we're anticipating an increase in the range of 32% to 35%, which has been the industry's long-term growth trend. As we move forward, it will be interesting to see if this growth continues post-pandemic, particularly with the increasing reliance on technology and cloud services. For now, we are witnessing solid growth in our capacity enterprise business as the year progresses.

Thank you. Hi, guys. First, I have a clarification for Bob. Bob, on the client devices growing 10%. You said the desktop and notebook grew 20%, and video grew 30%, and there was an issue in China. Just trying to understand what that was in mobile in China that you are referring to.

Yes. It was actually Huawei, which we talked about last quarter. And so, we're not shipping to Huawei either, on the flash side or on the hard drive side.

Thank you very much. I just had a question on CapEx. It seems as if you've shifted a little bit more, I think, from cash CapEx into the flash ventures. And I'm just curious, how we should think about that, if there's anything there? And then also, what are your thoughts on the amount of CapEx that's going to be needed over the next few years as you look at, hopefully, an improving market? Thank you.

Yes, that's a good question. In terms of gross CapEx, which includes our share of investments in the flash joint ventures as well as our own investments for the back end of the Flash and Hard Drive businesses, we anticipate gross CapEx of around $3 billion this year, consistent with what I've mentioned in previous quarters. This year, we are investing more in the hard drive segment compared to last year. Looking ahead over the next few years, our top priority will always be to reinvest in the business. We will evaluate how growth develops over the coming years and ensure we are investing to support market growth. I believe our current position reflects what I envision for the future.

Great. Thank you.

Hi. Good afternoon. Thanks for squeezing me in. Can you just maybe broadly talk about your thinking around edge cloud compute for 2021? It seems like based on what the service providers are talking about, that this could be a year where it starts to pick up noticeably. And so, where do you think you're going to play with NVMe drives versus HDDs? And how do you think you're positioned competitively? Thank you.

I think that's a potentially extensive conversation. Regarding our positioning, I believe we’re actually quite well situated. The majority of heavy storage needs will continue to rely on HDDs for a long time, but there is also significant growth expected in the enterprise SSD market, which is why we’re focusing on our NVMe enterprise SSDs. As cloud architecture evolves, especially with more edge-enabled devices, we will likely see increased points of compute and storage closer to those devices. I agree that we might be moving in that direction, and it's been a topic of discussion for some time. This is an exciting aspect of our business; the entire world is becoming more technology-driven, a trend that the pandemic has accelerated. The necessary architectures to support this evolution will continue to advance, and I believe we have a well-positioned portfolio for any scenario. We can operate at the edge all the way down to the devices, and we also have a strong presence at the heart of the cloud. It’s an exciting time to be involved.

All right, everybody. Thanks for joining us today. We appreciate it. We will see you during the quarter. Take care.

All right. Thank you.