M+E Connections

Western Digital (WD) expects its strong 2019 product portfolio will help it surmount market challenges that include continued flash pricing deterioration and tense U.S.-China trade issues, according to company CEO Steve Milligan.

WD has spent the last few years “building out our product lineup” and “we’ve got a very diverse product lineup” now, he said June 5 at the Bank of America Merrill Lynch Global Technology Conference in San Francisco.

The company entered this year with “the strongest product portfolio ever in the history of the company” and it plans to “continue to build on that as we move through the balance of 2019,” he said.

That product line includes “capacity enterprise drives that are used in hyperscale data center environments, where we have a leading market position,” he noted, adding: “We’ve been executing quite well in terms of our latest 14-terabyte product, where we’ve been able to increase our market presence [and] increase our share, so we’re very pleased with that.”

WD is “leading the industry” in 14-TB for hyperscale, he said later, in response to a question. “The notion that some have put out there that customers are skipping the 14-terrabyte capacity point to wait for our competitors’ 16-terrabyte is bollocks – it isn’t true,” he said, adding: “[Customers] are moving to 14-terrabyte and we feel that not only are we leading the industry there, but that we are well-positioned from a 16-terrabyte perspective. That has been an area in capacity enterprise where we have led the market for a number of years, and we fully intend to continue to be the market leader.”

The company has also been “executing well in terms of building out” nonvolatile memory express (NVMe)-based flash solutions — both enterprise and client applications, he said. WD has also “executed well in terms of our continued layer count in terms of 3D NAND, transitioning from 64-layer to 96-layer flash-based technology, as well as our execution in terms of energy assisted recording for our hard drives,” he told attendees.

And WD has been doing all that “in a challenging market environment, primarily as it relates to the flash pricing environment,” he said. WD expects flash revenue to grow in the “high single digit range,” but the “flash pricing environment has been not so good,” he noted. Most recently, there was about a 23% price decline quarter over quarter in flash pricing, and it’s just “hard to manage that from a profitability perspective,” he said. One major problem, he said, is “there’s been too much supply” in the flash market.

WD’s markets are “large and growing” globally, but there’s challenges growing from continued “trade tensions” between China and the U.S., he also told attendees.

The company has “largely … not been impacted by” the tariffs imposed so far by the Trump administration, Milligan said. “We’ve been able to mitigate any potential impacts through adjusting in terms of our supply chain… so, the tariffs to date, have had minimal impact on our business,” he noted.

What stands to be more challenging for WD is the trade ban on Huawei products that’s been implemented by the U.S. government, he said. “Huawei is a meaningful customer,” but “not a greater than 10 percent customer,” he noted. WD is complying with the U.S. government’s ban and “not shipping to Huawei today,” but is “very actively involved in the dialogue in terms of how to deal with the situation,” he said, pointing out he was in Washington, D.C. recently to meet with members of the Trump administration and senators, “talking about the situation and trying to figure out how we can navigate through this.”

He called it a “very fluid situation and also a very complicated situation.” There’s an “immediate impact” from the loss of revenue, and WD is “coping with that,” he said. Where the situation gets more complex is that “there are going to be second, third and fourth order impacts of this,” he noted. Consumers aren’t going to stop buying smartphones because they can’t get them from Huawei, “so there’s going to be a lot of displacement in terms of how this plays out,” he predicted.

That impact is “currently under assessment and it’s difficult” to gauge exactly how much of an impact there will be, he said, adding: “As we continue to evaluate it, as it becomes clearer, we will provide more information to the investment community,” especially during WD’s next earnings call.

In the meantime, WD “will focus on what we can control,” he said, explaining that means: “We’ll continue and evaluate our build plans. We’re going to continue to look at growing our presence in terms of underserved markets. We’re going to manage our costs and expenses aggressively, and we’re going to absolutely be focused on cash flow and those sorts of things as we go forward.”

He predicted the hard drive market will grow “in low single digits” in terms of revenue. On the company’s product roadmap, meanwhile, are microwave-assisted magnetic recording (MAMR) next-generation hard disk drives that it will be shipping in “our 16-terabyte platter before the end of the year,” he said.