Episode Transcript
[00:00:03] Speaker A: Welcome to AINA Insights, where prominent leaders and influencers shaping the industrial and industrial technology sector discuss topics that are critical for executives, boards and investors. INA Insights is brought to you by INA AI, a firm focused on working with industrial companies to make them unrivaled segment of ONE leaders. To learn more about INA AI, please visit our website at www.ina.AI.
[00:00:40] Speaker B: Hello and welcome to another episode of Titanium Economy podcast hosted by ina. Today we are delighted to have Chris, Chief Financial Officer at Western Digital with us.
Western Digital is one of the most essential enterprise data infrastructure companies.
They design and manufacture hard disk drives which is part of data centers, enterprise storage systems and consumer devices that many of us depend on. After a decade long journey which included $19 billion acquisition of SanDisk and a build out of NAND flash business and the eventual separation of the Flash business in 2025, best in digital is now a pure play HDD company and the timing cannot be right.
The AI infrastructure demand is driving unprecedented demand for high capacity storage that Western Digital is supporting for most of the hyperscalers globally. Chris joined as a CFO in May 2025 and he's been in the seat for a year. Prior to that, Chris was the CFO at Skyworks from 2016 to 2025 and before that at Enphase Energy and he has held several finance leadership positions at ami Onsemi and other companies. Chris, we are delighted to have you here and host you on the podcast.
[00:02:03] Speaker C: Yeah Vineet, thanks for having me. It's a pleasure.
[00:02:06] Speaker B: So Chris, for our listeners, I want to start with how would you describe Western Digital today and why is the hardest type technology so indispensable in the world where there Is Flash and SSDs?
[00:02:20] Speaker C: First of all, Western Digital we call ourselves right now wd. We didn't like the word Western in the title and so we're with WD right now and as you pointed out, we went through a major transformation about a year and a half ago where we separated our Flash business after having it acquired. And so that Flash business is now doing great all by itself as a standalone, strategically focused flash business SanDisk. But we wd now as you pointed out as well, are now a strategically focused pure play hard disk drive company and I'm really blessed and honored to be part of such a great organization.
When you think about AI, and I've said this a couple times before, there is no AI without HDDs because for AI you need five vast amounts of data and to store vast amounts of data you need HDDs think about globally, 80% of all data in the world is being stored on HDDs. And so we are a very strategic component in this whole AI data center build out.
You need a couple things that comes together. You need land, which is hard to come with land and permits that allow you to build data centers.
You need power to power up the data centers and they are very power hungry. You need compute and compute power, GPUs, TPUs, CPUs, whatever flavor you prefer.
You need a memory stack that supports that with HBM and dram. And then you need vast amounts of storage. And as I already indicated, 80% of that is being stored on HDDs. 15, 20% is stored on SSDs and then there is 3 to 5% that's being stored on tape as well, but at WD with hard disk drives. Strategic component of this whole cloud and AI rich data economy.
[00:04:31] Speaker B: Thanks a lot for actually sharing that. And let me just pick on the thing that you said, right? There is no AI without sgd. And I think that is so true given the amount of data that AI is generating and the data that needs to be stored either temporarily or permanently.
One of the key things that I want to ask is how durable do you think is the demand that AI is generating and how do you think about that? And also more importantly, how do you think about the customer concentration risk that comes with this?
[00:05:00] Speaker C: Yeah, first of all, we do believe that the demand is very sustainable and very durable and we actually are getting a lot better visibility. Again, being part of the strategic build out of AI, we at wd, we have earned our seat at the table and we have in conversations with all the large hyperscalers globally in the us, China, the rest of the world.
And as we have earned our seat at the table, we can actually challenge them and we have conversations with the hyperscalers to get a better understanding what is driving all this increased demand for data and data storage.
And if I summarize it, first of all, there is still the traditional cloud.
There's 8 billion people on the planet that continue to create vast amounts of data. Most of that video, we all have a phone in our pocket and we make phone calls and do emails with it, but we take a lot of video and pictures that all gets uploaded in the cloud and shared through social media. In addition to that, all companies on the planet nowadays don't throw away any more data. We at wd, we don't throw away anything, we store everything and we actually use it with AI algorithms And all of that to drive operational efficiencies.
So the cloud continues to be very strong. Now, in addition to that, of course we have AI. And as we already talked about, AI is really based on vast amounts of data, compute power that goes over tremendous amounts of data and there's multiple elements into that. First of all there is training, by the way.
For training you need big sets of data that you analyze, that you access and you train and get better.
Multi language models.
Those are multimodal, meaning it's not just text or picture based. More and more of that is video based. And again, the training is not over. Each and every week or each and every month, new models are coming out. Some of them are very generic, some of them are more specific and that will continue for quite some time. More and more training. We've also now moved into inferencing. And inferencing has multiple levels. Some of it is just chat box questions and answers, which by the way creates a lot of metadata that's being stored as well. But more and more we see agentic AI, one agent or multiple agents that deal with very complex issues that are being addressed which by doing so create again lots amounts of data that's being stored.
So that's inferencing, including agentic AI. And then third there is synthetic data that's being created to support the physical AI.
And not only synthetic data, but also physical AI, which for me is autonomous cars, robotics in the future, Humanoids, Big fan of humanoids.
What do they all have in common? They all have camera systems and they shoot video 24 hours a day. And all that video footage is being stored augmented with synthetic data. And a combination of that again results in very, very strong demand for data storage based on customer input. We believe that over the next five year the compound annual growth rate for exabytes HDD storage is greater than 25% and so very strong demand. We are hustling to make sure we can supply the in line with demand. And that's a little bit of a struggle. But that's why we are focused on our technology and product roadmap moving to higher capacity drives to be able to support 25% exabyte growth over the next five years.
[00:09:18] Speaker B: That's very fascinating and I want to talk a little bit about, you know, how do you support 25% annual growth? Because, you know, one solution could be just shipping more drives. But I think you are actually heading towards improving the technology using hammer heat assisted bracket recording to actually increase the aerial density and have more storage per hard disk drive. Can you talk about where you are with the Hammer transition? And what does Hammer technology mean for the growth and future for wd?
[00:09:47] Speaker C: Yeah, most we are. First of all, we are a technology company.
And the most important thing for us is the execution and the focus on our technology and product roadmap. That's the most important thing.
And what do we need to do? We need to move to higher capacity drives.
Currently, the highest capacity drive we're shipping is a 32 terabyte.
But we have a technology and product roadmap that supports 40, 44, 50 and eventually 60, 70 and eventually 100 plus terabyte of data storage per hard disk drive without changing the form factor of the hard disk drive. And so that's the most important thing that we need to do. And how do we do that? There's actually two ways of doing that. The most important there as well is increase the aerial density, being able to store more terabytes per platter.
Today we are approaching four terabytes per platter. And we do have 11 platters or 11 disks in a hard disk drive. And that's how with Hammer, we will get initially to 44 terabytes per hard disk drive. Eventually we will get to 5, 6, 7, 10 terabytes per platter.
And we also. That's the second element. We will continue to find ways to increase the number of platters, the number of disks, without changing the form factor inside a hard disk drive. And the combination of that will drastically increase the capacity per hard disk drive. And you're absolutely right about your other remark. We do not have to expand the unit capacity each and every quarter. We're trying to make a little bit more units because we're going to continue to look at productivity improvements and we're going to try to and successfully so increase the yield during the manufacturing process. And we're going to try to reduce test times and drive operational efficiencies, which will help us to produce a little bit more units. But that's not the main driver that will support the 25% exabyte growth. The main driver is really execution on aerial density, more platters, that all results into higher capacity drives.
And by the way, higher capacity drives has a lot of benefits in addition to just supplying more exabytes. Right. Because if you move to higher capacity drives, you actually deliver more value to your customers.
Because higher capacity drives results in better rack density, that results in lower real estate costs, and that also you don't need more power.
And so you have become more power Efficient. The combination of all of that adds a lot more value to our customers. And so that actually allows us to potentially charge a slightly higher price on a price per terabyte basis while still delivering more value and optimizing the total cost of ownership at our customers.
That's one thing. On the other hand, higher capacity drives also lower the cost per terabyte because it doesn't cost us that much more to produce a 40 terabyte or a 50 terabyte or 100 terabyte drive.
And so the cost per terabyte comes down drastically. And so moving to higher capacity drives gets you more exabytes. Higher price accelerates the revenue growth, while at the same time lowers the cost per terabyte and further enhances the gross margin and the gross margins improvements that we're driving.
[00:13:50] Speaker B: I want to dig on something that you said, which is WD is at the core, a technology company. And I couldn't agree more with that. Right. Because at the heart of it, if you think about the spacing that's between a head and a disk is in sub nanometers. It's a completely different scale that most people can even think and imagine about.
And you're making a lot of technological bets with Hammer, with increasing the number of platters in the disk. And all of those comes with significant technological challenges. And you need to make investments in these long cycle R and D investments.
How do you balance that with building the resilience in the balance sheet?
[00:14:36] Speaker C: Yeah. So for us, there is no hesitation at all. We see this very strong demand driven by cloud and AI. We get the confirmation from our customers. And so for us, there's no hesitation. And so we will continue to invest in our technology and product roadmap.
And currently we have a little bit of a dual track. Right. So we continue to invest in our EPMR roadmap. And we are, over the last 4, 5 quarters, we've executed flawlessly on the ramp of our 32 terabyte platform. We are now in front of the next ramp, which is our 40 terabyte EPMR platform.
And then at the same time, or slightly behind, we are going to ramp our 44 terabyte hammer disks as well. And then we will continue in the 50s and 60s and so on.
Hammer is very important to us because that's the way that will get us to 70 and 100 and 100 plus terabytes down the road as well. So, but for us, again, there's no hesitation. We will focus on innovation.
We will focus on getting to higher capacity drives.
And as you know, a lot of that things needs to happen for that. Right. You need to work on better heads that does reading and writing of the data. As you know, with hammer you have to add a laser inside the heads to do that.
By the way, we're already working on the next technology which is probably 10 years out. It's heat dot magnetic recording, which is a better version of the heat assisted magnetic recording, which is hammer.
But a lot of innovation in that area on the heads.
Secondly, substrate and media and you have some experience with that as well. Very complex, optimizing the recipe of how you magnetize your substrate and turn it into media.
A lot of innovation going on there and we are all in. And then of course the further mechanical integration into the hardware.
So again for us there's no hesitation. We making all the necessary investments in in addition to that, we also have to invest in our manufacturing footprint.
As I said before, we're not investing in expanding the unit capacity because we believe even over the next five years we don't need more units. We need higher capacity units, but we don't need more units. But in support of our technology and product roadmap, we do have to invest in our head and media manufacturing capabilities because we need better heads and better media. And as we potentially increase the number of platters per drive, you need more heads and more media as well to support that. And yet again, we have a global manufacturing footprint with two factories in the US that where we continue to invest, the head wafer manufacturing. And then we have a lot of factories on a global basis in China, in the Philippines, in Malaysia, in Thailand.
And we will also continue to invest in all those areas there, again in support of our technology and product roadmaps.
The good news is we're a fast growing company.
Revenue is growing really fast. Gross and operating margins are expanding at a good pace.
We're approaching plus 30% free cash flow margin. So we generate a ton of cash and so we can support all the necessary investments from our own cash that's being generated in our technology and product roadmap as well as in our global manufacturing footprint.
[00:18:58] Speaker B: Let me actually pivot to something slightly different. So data storage has been traditionally a very cyclical business. I know we are going through a phase of unprecedented demand and growth, at least for as far as we can see.
How are you thinking about driving financial discipline during this phase of growth?
[00:19:20] Speaker C: Yeah, first of all, I've been very vocal about that point as well. I fully agree with you. Historically, hard disk drive Business and storage was very cyclical. Now the main reason for that was most of the revenue was coming from consumer as well as from client. The PC business and those cycles or those businesses are very cyclical, we all agree.
And those businesses are very much unit driven. You don't solve it by moving to higher capacity drives. Consumers only need a two terabyte drive. You can say, hey, buy a four terabyte drive. No, I only need a two terabyte drive. So it's very unit driven and it's very cyclical. It goes with GDP and consumer confidence and the PC cycles and all of that.
Fast forward to today, 90% of our revenue is cloud hyperscalers.
By the way, you've asked about customer concentration, but there are also more and more new players. You have the Neo clouds, you have the AI labs, you have even the Dell, NHPS and netapps of these worlds.
And you have more and more new players that are getting into this market as well.
[00:20:42] Speaker B: Chris, I want to now switch the gears a little bit and want to talk a little bit about you and your journey.
You joined at the right time, I would say. Right. Like when this whole demand was picking up. What drove you to the seat?
[00:20:57] Speaker C: Yeah, I mean, I was CFO of Skyworks for nine years.
I'm very proud of what we accomplished with the team there.
But I was ready for my next challenge and I came across wd. As you know, WG was just going through the separation of their Flash business and so created those two separately strategically focused companies.
They needed a new CFO to run one of those two businesses. I was pitched the idea to join WD and initially it wasn't like a slam dunk for me because again, I talked to some friends and family and people in the industry and there was a lot of misconceptions about hard disk drives. It's like an old technology. It's not a lot of innovation, it's dying business.
But when I looked into it, I actually saw completely the opposite. This is a very fast growing, strong business.
Again, it's not cyclical. There's a very strong secular growth in that business and there's a lot of innovation going on. And as we started out the conversation, a very critical component in this whole AI data center build out. When I put this all together and I did some of my diligence, I got really wildly excited to join wd. For me, it was very important as well to assess the company, which was a lot of new things going on. We had again, as the company was so to Speak split into some new board members. There was a new CEO with Irving. Ten was a lot of new ELT leadership, including myself.
But as I did my assessment, I got wildly excited about that. And I especially like to work together with my CEO, Irving Tan, I call him. He's a man with a vision and a mission and a very strong value system.
We're making a lot of changes in the company, changing the culture of the company, focusing on high performance and high performance team, focus on innovation and execution across the company.
And so yeah, I'm very blessed and happy to be part of that.
[00:23:34] Speaker B: Well, it's pretty exciting and I could agree with you more. Right. You know, as some people say, this is not rocket science. This is, you know, hardest.
[00:23:41] Speaker C: Right.
[00:23:42] Speaker B: Guess which one is more complicated. But I agree with you. Right. Like the amount of technology that is going on in driving that aerial growth is unprecedented.
Talking a little bit about the changes that you are driving, both you and Erwin that are driving to change the culture and the performance.
Can you talk to us a little bit about what are the things that you are changing organizationally, financially, operationally and what is still to come?
[00:24:07] Speaker C: Yeah, I think the key element was starting with a vision and a mission. Right. And then what's the value system inside the company? And when you put it all together, we did three major things. First of all, we strengthened the customer relationships and created deep customer engagements. Again, we've earned our seat at the table being a strategic component in this AI data center build out.
It's not easy to get there, but we've earned our seat at the table and we've really spent a lot of time at the executive level because it's not just a sales job. Right. It's the whole executive level that has entered into deeper customer engagements of all levels of our global customers. And I think we've executed really well on that. That's one second.
Again, we're a technology company and innovation is front and center and execution on the technology and product roadmaps.
It actually starts by clearly defining what the technology and product roadmap is.
I thought a year, a year and a half ago it wasn't necessarily clearly defined and you have different teams moving into different directions.
We've, we did a great hire with Ahmed Shihab who came from Microsoft and AWS and who leads our technology and product groups together with the elt. We clearly defined technology, product roadmap, what the priorities are and really focused on execution and we've made a lot of good progress there. And then thirdly, I mean We're a manufacturing company. Right. We produce hard disk drives. Right. Making sure we have a strong global footprint, drive operational efficiencies in all our factories globally as well as the supply chain. Right. Because don't forget the supply chain. We produce a lot of things, but we buy a lot of things as well.
That all needs to come together in support of the strong growth that we see. And we really focused on those three things.
Of course, as a chief financial officer, I made sure that those three focus items translated into results that are measured by revenue and revenue growth that are measured by gross and operating margins, expansions that are measured by free cash flow and free cash flow margins. And the growth of all those metrics. And I think just in a little bit more than a year, we've, we've executed pretty well on that.
In addition to that, we really focused on what to do with the cash because we generate a ton of cash and we focused on first of all strengthening the balance sheet. And again, at the time of the separation, the company at more than 7, $8 billion of debt and a very complex capital structure. We had every flavor of equity and debt. We had common stock, we had preferred stock, and on the debt side we had secured notes, unsecured nodes, term loan, a revolver and then convertible notes.
I think the only thing we didn't have at that time was term loan Bs, but very complex structure.
We also had at the separation still 19.9% of retained stake and sandisk. And we monetized that stake and we used a lot of the proceeds in different transactions. Initially debt for equity type of transactions where we drastically reduced the debt on the balance sheet.
Later on we didn't have more eligible debt. We went into equity for equity transactions where we actually reduced the share count. As a result of that, the balance sheet now is almost clean. We still have a little bit of convertible debt that is being removed, but we are now in a net positive cash position.
And so in addition to that, we've also installed a shareholder friendly capital return policy.
And so we introduced honor about my first day at the company, a dividend program that we've already increased the dividend on a regular cadence and we're fully committed to our dividend program, but there's a lot more that we can do there. But the vast majority of the free cash flow is being returned to the shareholders through our share buyback program. And we have a very robust share buyback program that's being installed. We cost average over time.
It's an intrinsic value based model.
But as you just listen to everything what I've said so far, strong revenue growth, gross and operating margin expansions, strong free cash flow and free cash flow growth in a secular growth market with long term visibility.
When you put that all into a model, you can see the intrinsic value is a lot higher than what we have today. And so there is no hesitation on the buybacks and continue to return the excess cash back to the shareholders.
[00:29:50] Speaker B: Lots of changes in 12 months and I believe only a seasoned CFO can do that. That you come to this role with three prior CFO roles at Skyworks, at Anphase and at Standard Microsystems. What's the common thread between each of those roles? And also how did each chapter prepare you for this one?
[00:30:10] Speaker C: Yeah, and before that I was at AMI and before that I was at Alcatel in CFO executive roles as well.
It's a good question.
When I think about it and people who know me a little bit, I like a challenge for me, something that's difficult, that's hard, that's not obvious.
I'm attracted to that. And so you can go back, I mean like Alcatel or EMI or Standard Microsystems. In many cases it was AMI and Standard Microsystems was Christine King, new CEO twice that came in that rebuilt the leadership team and that completely refocused the company.
Start with what's the strategy, what are the core competences, what do we need to focus on?
Divest some underperformer business.
And then in some of those companies we've done a lot of M and A as well to kind of rebuild the strategy and really focus on driving sustainable, profitable growth in the long term.
So in many of those companies that was a little bit the same. When you look at wd, it's a little bit the same as well at a much bigger scale. But. But the company had gone through a major, somewhat disruptive event separating the flash business from the hard disk drive business. New CEO comes in, builds a new leadership team and all while the business is booming at a very fast pace.
To me that all sounds like music to my ears. It's a huge challenge. It's not like your normal day to day activities you, you are encountered with, but that's something that attracted me and I think my prior experiences in all those companies really set me up well to be successful in this challenge as well.
[00:32:30] Speaker B: Chris, the CFO role these days is not just about finance. Right. There are a lot of things that are folded into that cf be it strategy, be it M and A technology, best bets, investor Relationships.
Where do you see yourself adding most value going forward in your seat as a cfo?
[00:32:48] Speaker C: Yeah, I think definitely the role as a CFO over the last five, 10 or 20 years has changed. Right. I mean, I know how to do debits and credits, but that's not where my strength is. That's why I've hired a very strong chief accounting officer. Right. I'm somewhat dangerous in tax and I like tax and tax optimization and all of that, but I also have a good tax manager that takes care of that. And so similar with treasury and other elements, of course, you have to, as a cfo, you have to make sure you manage all the different finance functions and you optimize all of that.
But I think more important is really on the strategic role, right. How you, in collaboration with the elt, the CEO and the board, define the strategy, make sure we execute to that strategy. We look at, again, look at our core competencies that we can leverage in our core business as well as in what's next.
And we've spent quite some time as a team and my own personal time about how can we ensure because WD is a 56 year old or young, anyhow you look at IT company, there's not a lot of technology Companies that are 56 years old or young. But we are.
And with Irving and the team, we've asked the question from day one, how can we ensure we're going to be successful over the nest that next 56 years? Right. And so what do we need to do in terms of investments changes, cultural changes, focus changes? How can we make sure that we're successful in our core business as well in anything else that we potentially can do, leveraging our core competence. And we identified and we haven't talked too much about that, so we're going to talk more about that in the future. But stay tuned.
We've definitely identified certain areas that we can leverage, our core competencies that could lead to new businesses that we could be wildly successful 56 years down the road. And it's not going to take 56 years to get there. But you get my point.
[00:35:19] Speaker B: No, and I saw that like in the last year's Investor Day, you guys did talk about some of the new things that you are doing to actually grow and expand beyond use the technologies that you have and the expertise that you have to grow and expand beyond your current business paths.
Chris, one last question. The titanium economy thesis has been that industrial and semiconductor companies are the backbone of US economy.
WDE is one of the core companies of that particular sector.
What do you think about the US economy, the American economy, if more talent and capital were to flow into this?
[00:35:54] Speaker C: Yeah, that's a great question. And so we definitely at wd, we're involved, right?
We have nanofabrication, we have some semiconductor type of businesses. As we produce the wafers, that turns into their heads. But we're also to a certain extent more of an industrial company where you do media and then precision manufacturing, assembly and test operations.
I mean, we have 40,000 employees to do that on a global scale.
Some of that is done in the US we have two of the wafer fabs that are based in the US here.
But a lot of that, of course, is also done in Asia.
In addition to that, what's striking to me, we do have a complex supply chain.
Most of that is non US it's definitely something I was reflecting about it.
Why does that not exist in the U.S.
and maybe we didn't have the right incentive structures in place, or maybe we didn't focus on certain businesses because they were maybe considered not the highest tech type of businesses, but they are very essential. Right. Again, nanofabrication, more industrial type of applications. I mean, as you know, for hard disk drives, we buy suspensions, we buy small motors.
Those businesses are not in the US Are they ever going to come back?
I don't know.
There's definitely a lot of investments in semiconductor and I think more and more semiconductor business will come back to the US but it's still not an not an easy place to compete. Right.
Again, you need to go find land, you need to get permits, you need to get power and water to support those businesses. You need talent, which is hard to find as well.
But I think we're on the right track. A lot of support from the ecosystem, including government support, is being pulled together to change that. It's not going to happen overnight, but I think we're moving in the right direction. Obviously, outside of the U.S.
the global economy is not going to sit still and they're going to also continue to invest, educate and provide incentives and make land and power and water and utilities available to support those activities.
And so on a global scale, I think we're in a good shape. And as a company WD and as a cfo, we will of course look at all those global opportunities and play our cards well. Perfect.
[00:39:01] Speaker B: Chris, thanks a lot for your time today. It was a pleasure to host you on the Titanium Economy podcast.
[00:39:07] Speaker C: Thanks for having me.
[00:39:13] Speaker A: Thanks for listening to INA Insights. Please visit INA AI for more podcasts. Publications and events on developments shaping the industrial and industrial technology sector.
