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Operator
Welcome to Western Digital's second quarter financial results for fiscal year 2003.
Presently, all participants are in a listen-only mode, and later we will conduct the question-and-answer session.
As a reminder, this call is being recorded.
I would now like to turn the call over to Mr. Bob Blair.
Thank you, sir.
You may begin.
Bob Blair - Vice President of IR
Thank you.
As we begin, I'd like to remind you that during the course of this call, we will be making forward-looking statements in our comments and in response to your questions concerning pricing trends for the March quarter, inventory management practices, ramp and mix of 80 gigabyte Per-Platter technology, improvements in IT spending, our expectations of growth in the desktop PC and consumer electronics markets, and our business and financial outlook for the next quarter.
These forward-looking statements are based on current expectations and actual results could differ materially as a result of several factors, including the company's ability to execute future production ramps, uncertainties related to the development and introduction of products based on new technologies, overall supply and customer demand in the hard drive industry, pricing trends and other competitive factors, changes in product and customer mix, business conditions and growth in the PC industry, availability of product components, and other factors listed in our recent SEC filings, and in our first quarter press release issued today, pardon me, our second quarter press release issued today.
We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances.
I would now like to turn the call over to Matt Massengill, Chairman and Chief Executive Officer, Matt.
Matthew E. Massengill - CEO
Thanks Bob.
And good afternoon everyone.
With me are Arif Shakeel, President and Chief Operating Officer, and Scott Mercer, Chief Financial Officer.
To summarize our Q2 performance, we reported revenue of $749.5 m, on unit shipments of $10.3m.
Earnings per share are 36 cents, and operating income of $76m.
These numbers represent impressive across the broad, year-over-year comparisons. 30% higher revenue, 34% growth in units and a six-fold increase in operating income.
Our operating margins, hit its highest level in ten years, at 10.1%.
Gross margin reach 19.2% versus 12.3% a year ago.
Scott will cover our Q2 financial performance in more detail and provide our new guidance.
These are very satisfying results and I want to credit the entire Western Digital Organization and our supplier partners who performed so well, and thanks to our customers for the opportunity to serve them.
We encountered a positive set of industry conditions in the December quarter.
Demand was strong across all channels -- OEM customers, distribution white box, and retail and all geographies.
We worked very hard to meet customer needs with continued focus on flexibility, reliability, and quality.
Pricing was very favorable and we shift a richer mix of products reflected in our sequentially higher average selling price.
The quarterly financial results now recorded by the three largest players, the December quarter can be declared for the first time in at least six years that the desktop drive industry has seen flat or higher average selling prices for three straight quarters, and it would appear that March quarter prices could well remain within the range of the last three quarters.
Industry inventory levels were well managed throughout the December quarter.
As of today, inventories in the channel for ourselves and for the industry are between four and five weeks, well within the manageable industry range.
If inventories remain within the comfort band for the rest of the quarter, it will continue to demonstrate this industry's discipline practices in this critical area.
Turning to technology deployment, we are on plan and in production of our 80 Gigabyte per platter platform, and we will continue to ramp this technology in the first half of calendar 2003.
As we exit the June quarter, we anticipate having essentially all of our desktop mix based on this technology.
We have spent a lot of time over the last three years communicating with you about what a great industry the hard drive business can be if the company is structured properly and meets customer needs.
The results we recorded for the December quarter are a tangible demonstration of this assertion.
This is a maturing business that quarter-by-quarter reflects better business practices of its major players.
The hard drive industry serves a huge core market that is still growing and we are just beginning to benefit from the fast growing personal entertainments markets with value what we produce, coupled with the advent of Serial ATA technology creating a new market in the enterprise.
There is a compelling set of opportunities for Western Digital in the quarters and years ahead.
Overall, we believed the IT spending environment has improved and our result are evidence of this.
We believe the environment will continue to improve in calendar 2003 and our guidance for the March quarter reflects this view on a year-over-year basis.
While we believe that third fiscal quarter will exhibit some of its usual seasonality coming up the extremely strong December quarter, we see this as [muted] by historical standards and our outlook is for a very solid start to the calendar year.
Scott Mercer will now cover our financial performance and guidance.
Scott.
D. Scott Mercer - CFO
As Matt indicated, the business environment during the second quarter provided an excellent opportunity for Western Digital.
Demands somewhat exceeded supply during much of the quarter leading to a very firm and in some channels increased pricing.
Also our customer requirements for more storage drove a richer product mix.
This coupled with superb execution by the Western Digital team enabled us to deliver outstanding financial results.
A 20% sequential unit increase combined with a $5 per unit increase in ASPs resulted in revenues increasing by 29% on a sequential basis.
The favorable supply demand environment allowed us to increase gross margin by 72% sequentially and with good control of expenses, operating income increased over 200% from September.
Our cash balance also increased in the second quarter by $82m.
These results provide further proof of the earnings leverage and financial discipline inherent in Western Digital's business model.
I will now move on to the details of the second quarter, after which I will provide an outlook for our third fiscal quarter.
Revenues for the quarter were $749m -- a sequential increase of $167m from the September quarter, and an increase of $175m from the prior year.
Our unit shipments of $10.3m were up $1.7m from September and $2.6m from the prior year.
Average selling prices were approximately $73, up $5 from the September quarter.
Shipments to consumer electronics customers were approximately 7% of our unit volume for the quarter.
Revenue by channel was 53% OEM, 39% distribution, and 8% retail, about the same as of September quarter.
Once again we had two greater than 10% customers during the quarter -- Dell and HP.
Our Q2 geographic split of the business was 50% North America, 31% Europe, and 19% Asia, as compared to 48%, 33%, and 19% respectively in the September quarter.
Our gross margin percentage was 19.2%, up 490 basis points from the September quarter and 690 basis points from the prior year.
The strong margins were the results of a favorable supply-demand environment, particularly in the distribution channel, and superb operational execution.
Our product mix also improved from September, as we shipped more multi-platter drives.
Operating expenses were $68m or 9.1% of revenue, as compared to $58m for the September quarter.
The $10m increase is primarily because of higher [inaudible] performance in retention plan expenses.
Operating income was $76m for the quarter, up $51m from September, and up $63m from the prior year.
As a percentage of revenue, operating income was 10.1%.
Net interest and taxes totaled about $3m.
Net income was $74.4m or 36 cents per share, including a $1.3m gain from discontinued operations, as compared with net income of $22.2m or 11 cents per share for the September quarter.
Net income for the year ago quarter was $12.6m or 7 cents per share, including $3.5m of net investment gains.
Fully diluted shares outstanding were about $204m, up approximately $7m from September due to the increase in stock option equivalents.
Turning to the balance sheet, our cash balance at quarter end was $327m, up $82m from the September quarter.
Cash generated from operations was $92m for the quarter, up $47m from September, as a result of our improved profitability and solid asset management.
Capital expenditures were approximately $50m for the quarter.
And our non-cash charges for depreciation, amortization, and interest totaled about $13m.
Proceeds from auction exercises provided approximately $7m.
There were no repurchases of convertible debt during the quarter.
However, we have began the notification process with bond holders.
And in February, we will be repurchasing for cash any bonds presented to us for redemption.
As of the end of the second quarter, we had approximately $74m in convertible bonds outstanding.
Our cash conversion quarter for the cycle was a negative 7 days.
The current period conversion cycle consists of 30 days of receivables, 16 days of inventory or 23 turns, and 53 days of payables outstanding.
That was look back to our second quarter.
Now, I'll move on to our expectations for the March quarter.
We had a strong December quarter, given the normal seasonal increase in demand and selected product constraints within the industry, resulting a very favorable pricing environment.
In the March quarter, we don't foresee the same product constraints and correspondingly, we expect to see somewhat less favorable pricing trends, albeit still a very profitable quarter, especially by historical standards for our March quarter.
We expect revenue to between $675-700m, on shipments of between 9.7-10m units.
Our gross margin is expected to be about 16%.
Operating income is expected to be between $44-48m.
Net interest expense and taxes are expected to total about $2m.
Accordingly, we expect net income of between $42-46m or earnings per share of 20-22 cents.
Our share count is expected to increase slightly, as more options are exercised [that] make their way into the diluted calculation.
I'll now turn the call back to Matt to open up Q&A.
Matt.
Matthew E. Massengill - CEO
Thank you Scott.
Operator could you open up the call for questions please.
Operator
Thank you.
Ladies and gentlemen we will now begin the question and answer portion of today's call.
If you have a question, please press star "1" on your touchtone phone and questions will be answered in the order they are received.
If you would like to withdraw your questions, please press star "2".
One moment for our first question.
Our first question comes from Kimberly Alexy and please state your company name.
Kimberly Alexy - Analyst
Thanks Jeff (ph) Prudential Securities and congratulations on a great quarter.
The first question I have is if you could just talk about the linearity that you saw within the quarter?
Obviously you had a solid close and I am just curious as to your commentary being little, you know, positive in terms of the March quarter suggesting may even better than seasonal types of trends, if you could just sort of give us a sense as to what you are seeing?
And may be along those lines, give us a sense as to whether or not, any of your customers, any of the OEMs have any sort of excess plus inventory, that you are not aware of at this stage?
D. Scott Mercer - CFO
With respect to the linearity Kimberly, this is Scott, as we pretty much expected, the December quarter was a very linear quarter.
Relatively front end loaded compared to some other quarters.
So looking back it is positive for us.
Matthew E. Massengill - CEO
As far as the March quarter, in general Kimberly, I think that you know we expect that the PC demand will be down slightly quarter-over-quarter.
In addition we would anticipate some softness on the consumer side, and as a result we've reflected that in our volume forecast.
But with that said, again this March quarter appears to be far less severe as far as it's a downward trend than other quarters in the past.
I think that reflects generally what's been happening, almost across the board that we are seeing more linear quarter-to-quarter result.
We are in a seasonal business, but its becoming more muted in general.
And we don't know of any significant inventory, or even modestly significant inventory issues at our customers.
If there are any, we are not aware of them.
Kimberly Alexy - Analyst
Okay good.
And then one follow up on the margin strength and I was looking back in our model and I think you said the operating margin peak was 10 years ago, gross margins partly somewhere in '94.
I know your guidance going in to March is, sort of, 16.
But can you walk us through what you really saw in the December quarter?
Was this really just the volume leverage that you are getting and when you look into the March quarter is the assumption that because of some other ramps [inaudible], that would be one of the reason why it was cut down?
And than maybe just sort of touch on, you know, what sort of a longer term margin model -- it seems like in general the water levels have been rising across the board -- is there any sort of revision that you have in mind for calendar '03, a simple longer term margin model, given that some of the recent strength?
D. Scott Mercer - CFO
Sure Kimberly this is Scott.
I mean we have several favorable things working for us in the December quarter.
You know -- as I mentioned in my remarks, our mix was much richer in the September quarter.
Many more multi platter drives -- there seem to be just a huge amount of demand for our hard capacity products, which was part of it.
Pricing, obviously, was stronger particularly in the distribution channel.
And, you know, that can apply almost across the board to the units.
So that was very favorable for us.
With respect to the long term model, I think as we keep putting as an industry these good, solid quarters under our belt, we can have more rational pricing in that.
We have moved our margin model a bit.
You know, depending on the supply, demand constraints or excess or -- in any particular quarter, what the situation is, I think we'd see it now that, in general, you have a 13-14% kind of low- end range when there is a reasonable amount of supply over demand.
And you have a 16-17% kind of a range when perhaps a few shortages are in [your belt].
So that's more or less the way we are seeing the business today going forward.
Matthew E. Massengill - CEO
And with regard specifically to your question about March, Kimberly, I think what we are reflecting is the fact that; number one, demand will probably be a little bit softer than it was in calendar Q4, although still fairly good and supply and demand in better balance.
So, you know, we don't have the kind of supply imbalance that we started the last quarter with.
So we've been a little bit more conservative with our gross margin guidance as we sit here in January
Kimberly Alexy - Analyst
So that is not really a reflection of your anticipated -- any kind of yield issues on the [80s], that [drove] you about that demand supply balance in the -- ?
D. Scott Mercer - CFO
Simply our current view of the demand supply balance are important.
Kimberly Alexy - Analyst
Great thanks a lot.
Matthew E. Massengill - CEO
Thank you
Operator
Thank you, our next question has from Kenneth Abraham, sir please state your company name.
Kenneth Abraham - Analyst
Wellington Management.
You are not going to put any of that money in t any new ventures are you guys?
No, I am sorry.
The question is in terms of how the enterprise drives, what are you willing to share with us in terms of, you know, how close you are to carving out what you think might be your rightful share of price in that market?
You know, how is, you know, the qualification process going, you know, what can you share with us?
Arif Shakeel - COO
This is Arif.
As we said earlier the first half of this year, we will be entering that particular market with a [Stereo 80] interface.
At this moment, its going right on plan and hopefully in the next several months, we'd be able to give you a better update.
Unfortunately, we can't give you a whole lot more data than that at this particular moment.
Kenneth Abraham - Analyst
So you can't talk about design wins or -- ?
Matthew E. Massengill - CEO
No we haven't formally announced a product yet, so it'd be little premature.
Kenneth Abraham - Analyst
Okay, so if you execute -- I mean you have this road map you've been, you know, diligently working away -- if you were to execute as you expect, if you exit -- if you are thinking about the fourth calendar quarter for a second to December quarter of '03, if you execute to the extent that you hope, what kind of share would you take -- would be something attainable for you guys in the enterprise drive market?
Matthew E. Massengill - CEO
Well, I think you got to look at it for a complete market force and then a subset Western Digital.
I think it's very possible that perhaps up-to 15% of the total market could be [filled] ATA; and out of that it will depend on what our performance is.
If we perform well, then we should be able to take a major part of that ship; if we do not, then we are not going to.
But Serial ATA is gaining such momentum that we believe for the industry, somewhere between the 10-15% is a doable thing by the fourth calendar quarter of this year.
Kenneth Abraham - Analyst
Okay.
Thank you.
Matthew E. Massengill - CEO
Thanks Ken.
Operator
Thank you.
Our next question is from Clint Vaughn.
Please state your company name.
Clint Vaughn - Analyst
Solomon Smith Barney.
Thank you.
Could you a talk a little bit about your customers, Dell and HP as it relates to the linearity in your quarter?
It seems like that could be mitigating what would otherwise be more aggressive seasonality due to an increase in consumer influence on your business.
So could you, just kind of, walk me through that a little bit, then I just have one more question?
Thanks.
D. Scott Mercer - CFO
Clint this is Scott.
We want -- you know talk specifically about any Dell or HP business have a generically, as we have been saying, both those companies have quarter ends, which are -- end one-month office calendar companies.
They both end in this month in January and last quarter they ended in October.
That generally for us and for the industry, they are having big end of quarter activity should help [inaudible] general.
Clint Vaughn - Analyst
Okay, and that seems to be mitigating the increased influence of the consumer, which would point to more of -- up December down march, right?
D. Scott Mercer - CFO
Well to some degree, I think you will remember our total unit volume for the consumer business was roughly 7% or so last quarter, and we expect it to be down a little bit this quarter.
We think PC's are reasonable strong.
So, I would say it is a more of a reflection of the overall strength of the PC market than it is any particular artifact if somebody [is in the] quarter.
Clint Vaughn - Analyst
Okay great.
Let's hope for [inaudible].
The other question I had was with regard to your retail sale.
It looks that was pretty strong this quarter.
That -- could you outline the typical ASP/ gross margin?
What products were successful there?
How that flowed and where do you expect that to go in the March quarter?
Will it be a precipitous fall-off or -- what kind of seasonal trend should we expect there?
Thanks a lot.
Arif Shakeel - COO
This is Arif.
Let me answer that, you know, from a capacity perspective.
What we saw last quarter when we were beginning to see more and more retail is, that our main and high-end capacity drive are in a very high demand with all the audio-video things that are going on to the market place.
So we are beginning to see more growth in that area because of our leadership position in the mid-to-high end of the market place.
I don't see that trend changing.
We talked about that we think, you know, traditionally this quarter is going to be a little bit softer than last quarter.
But the trend remains from a capacity perspective the same as it was last quarter, which is people are demanding mid-to-high end drive which we are pretty good at.
Clint Vaughn - Analyst
Arif, do you think this is -- drive is going in the PCs or do you think you are getting a fair amount of incremental demand from add-on drives because of the cameras and the MP3 players.
Arif Shakeel - COO
We don't really know exactly but I was ventured to say of sales -- bit of them are going outside the PC.
Because remember, we also offer a in-the-box drive also.
So, I think a lot of these drives are going to find themselves outside the PC for PC add-on and PC applications, like you mentioned.
D. Scott Mercer - CFO
And too Clint, you know, folks that are integrating a drive for the first time into the PC or probably not going to go to retail by -- a shrink wrap box.
Clint Vaughn - Analyst
Right.
Great.
And can you just give us a -- just a housekeeping -- could you give us the mix 5400-7200?
D. Scott Mercer - CFO
Yeah.
It was up 58% of unit 7200.
Clint Vaughn - Analyst
Thank you.
Operator
Thank you.
Out next question is from William Lewis.
And please state your company name sir.
William Lewis - Analyst
Thank you.
J P Morgan.
Couple of question if I could?
First of all, could you comment on industry supply of components as you transition to the 80 gig. for platter products, particularly it had -- I think there's a concern and perhaps rightly that there won't be adequate supply as the entire industry moves to that new capacity point?
Arif Shakeel - COO
This is Arif.
You know, we lead our A-plan, a little while ago to transition from 42 to 80 gigabytes, and of course we kept a very active dialogue with our suppliers.
For where we sit today, I can speak for Western Digital and our ramp plan.
I do not see any component shortage in the 80 gigabyte RAM that we have planed [bead], so let them all [bead heads].
I can't speak to the industry, I have heard things that there are certain components that are short but I have no data to share with you.
From our perspective, we have enough components to satisfy the ramp that we are planning on this floor.
William Lewis - Analyst
Okay.
And -- but how this has been asked already.
Could you break out what your sales to the consumer and markets were in the quarter, and what's your expectation is next quarter?
Bob Blair - Vice President of IR
Well you didn't talk to Scott.
We did about 8% of revenue in retail in the December quarter, and we really haven't talked.
We didn't give an estimate for what will be a...
D. Scott Mercer - CFO
I will say that last year in the March quarter was 7%.
Arif Shakeel - COO
As far as consumer versus commercial we have no idea.
William Lewis - Analyst
Sorry.
When I meant commercial, I meant consumer electronics say for Xbox, non-PC applications.
D. Scott Mercer - CFO
I am sorry.
Its 7% was consumer electronics mix [though].
Bob Blair - Vice President of IR
And that will be less than that this quarter.
William Lewis - Analyst
Or revenue.
Okay, great.
Thank you, great job on the quarter by you.
D. Scott Mercer - CFO
That was not a [inaudible] 7% of volume.
William Lewis - Analyst
Okay, thanks.
Operator
Thank you.
Our next question is from Richard Kugele and please state your company name.
Richard Kugele - Analyst
Needham & Co. Matt, I was wondering if you might be able to just kind of reiterate again -- how long you think the industry might sit on the 80 gig. platform in terms of aerial density before we see the next generation?
And then secondly -- you know as if you look on to win the '04, when we have an integrated chipset for serial ATA, and serial [SCSI] starts to make to make an appearance; what do you think the impact of the penetration of serial ATA might be from serial [SCSI] at all, if you can see that?
Matthew E. Massengill - CEO
Okay.
Well, as far as the length of time in the 80 gigabyte per-platter technology, we are aware this is very difficult to say.
Obviously the width is long as -- it's the most cost-effective solution to be build and sold.
We think that it will live probably longer than the 40 gig. per-platter did; how much longer is to be determine but, I think, we will see 80 gig. per-platter around for quite some time.
Probably the longest lived technology in recent history of the drive's business.
As far as serial ATA versus serial [SCSI], it's a pretty -- I think it's a pretty simple equation and the customers will choose between cost and efficiency and legacy.
And for those customers that -- where legacy is more important than cost and efficiency, then they will choose serial [SCSI] and for those who are interested in price performance -- even a very high end solution -- will probably choose serial ATA.
I don't think serial [SCSI] is going to take share out from serial ATA, I think that both going to take share from [parallel SCSI].
Richard Kugele - Analyst
Okay.
Great.
Great quarter.
Thank you.
Matthew E. Massengill - CEO
Thank you.
Operator
Thank you.
Our next question is from Naveen Bobba and please state your company name.
Naveen Bobba - Analyst
Bear Stearns.
Another excellent quarter gentlemen.
Congratulations.
Matthew E. Massengill - CEO
Thank you, Naveen.
Naveen Bobba - Analyst
Two questions, if I could?
One, Matthew, clearly you have been growing very strong in terms of unit terms sequentially for the past two quarters.
Can you talk about your capacity plans, where are you in terms of being adequate in capacity of any plans to add any capacity?
And second, coming back to your comment on ASP front being fairly stable in fact up this quarter, given historic trends of about 15% or so decline -- what do you think could be the date of ASP decline from now onwards?
Arif Shakeel - COO
This is Arif.
Let me take the question of the capacity and Matt you can give in the [inaudible] or a part of it.
We have, you know, as we introduce new products -- we are constantly increasing the efficiency of our manufacturing process.
At this moment we have enough capacity for the foreseeable future.
Even though the volume make a lot; our efficiencies are keeping up, as a matter of fact are ahead of that group.
So at this moment, I am not concerned that we need to do something extraordinary to satisfy the demand that we see out there. [Matt] you want to address the ASP.
Matthew E. Massengill - CEO
As far as the ASP in concerned, Naveen, we believe that due to a number of factors the industry will experience far or less severe price declined in the Desktop that it has had in the past.
And the drivers to that are follows, more consolidated industry.
The fact that we are essentially out of fast cost reduction opportunities because we are shipping two heads on a platter on average for the industry, and lengthening aerial density, which -- lengthening clock cycles versus the [inaudible] with the given generations.
So when you add all those up, I think we are in for less severe price declines in general.
Now, does that mean it's, you know, 3%, 5%, 7% or 10%, I don't know.
All I know is for the last three quarters they haven't gone done much and I think that it's likely to be quiet modest moving forward.
And we will have to see what the market allows that to be.
Naveen Bobba - Analyst
Thank you.
Operator
Thank you our next question is from Harry Blount and please state your company name.
Harry Blount - Analyst
Thank you.
Lehman Brothers.
Congratulations.
Quick couple of questions.
Any update on competitive dynamic -- there has been some speculation of one year or one or more year desktop competitors might not be transitioning to 80 Gigas -- you have any comment on that at all?
Matthew E. Massengill - CEO
We assume that all of them are.
We don't have any specific information or general information, for that matter, to share with you on that regard.
Harry Blount - Analyst
Okay and one of your major initiatives has been to increase your penetration in A-Pac region, can you give us a little bit of an update on that and what we might see in the remainder of calendar '03?
Arif Shakeel - COO
Yeah, yes.
This is Arif.
Our focus has been, as we talked to you last quarter, on Asia Pacific.
Glad to report that we are making very good progress, both in the distribution as well as the OEM part of the business in Asia Pacific.
As we said, 19% of our business, I believe, Scott if I am correct, was -- came from Asia Pacific on a much higher revenue base.
We are making very good progress.
Still a lot of work to do.
It could be [inaudible], don't get me wrong, but progress to date has been satisfactory.
Harry Blount - Analyst
Okay and then as we look out beyond the first calendar quarter -- the third quarter here for the ups and downs for revenue growth and margin expansion, on the positive side continuing shipment of the multi-platter, more Serial ATA increased penetration of A-Pac, offset by ASP declines, what are some of the other pluses and minuses you might be thinking about?
Matthew E. Massengill - CEO
That's quiet a list.
Harry Blount - Analyst
I tried hard.
Matthew E. Massengill - CEO
Did you cover supply demand dynamics?
That's the one that we should be paying attention to.
But I think that [inaudible] Scott described it fairly well earlier which is, you know, we used to think that this is different margin model and there were more of this, and the market was a little more volatile.
Today, we are sort of thinking of it in a, sort of a 13-17% range on the desktop business, anyway with 13 being when things are little out of [whack] with more supply then demand, and 17 when demand is a little bit better than supply.
And obviously with upside opportunity, as we demonstrated to that, if its really at a [whack].
Harry Blount - Analyst
Great thanks.
Operator
Thank you.
Our next question is from Christian Schwab and please state your company name.
Christian Schwab - Analyst
Craig Hallum.
Great quarter guys.
Few quick questions.
I got unfortunately disconnected from the call earlier.
On gross margins, what were the gross margins if you exclude the Xbox?
Arif Shakeel - COO
Christian we didn't break that out.
Overall gross margins were 19.2%.
Christian Schwab - Analyst
Okay.
So you didn't break that out like you did last quarter?
That's fine.
Could you give us an idea then of peak gross margins on a go forward basis?
Arif Shakeel - COO
Well we talk it a few minutes ago.
We think that the current kind of margin range, depending on the supply demand dynamics in any particular quarter is 13-14 at the high and 16-17 -- I think 13-14 there is the low end and 16-17 at the high end.
And as you know, we can obviously exceed that in sometime given some extraordinary supply demand circumstances as we saw in the December quarter.
But that's our current view of the range.
Christian Schwab - Analyst
Excellent.
And then on the inventory, at what point do we worry about channel inventories, at what level?
Matthew E. Massengill - CEO
I think as long as the inventory stays within a 3-6 week range, we are probably alright.
It gets over six weeks, it may be a problem depending on when and how and what circumstances brings it to that level.
Obviously if you got 6 weeks going into an October, you are going to be a lot less worried then if you got 6 weeks going into a May.
D. Scott Mercer - CFO
And if it's a problem, it will be determined based on all of collectively, or the company's reaction to that inventory level.
So how quickly we react to that and adjust our goal plans accordingly could make [it not] a problem very good.
Christian Schwab - Analyst
Excellent, thanks.
Operator
Thank you.
Our next question is from Kevin Hunt and please state your company name.
Kevin Hunt - Analyst
Yes, Thomas Weisel Partners.
Just had another follow-up on the competitive dynamic question from earlier.
And clearly you guys gained a lot of market share this last quarter, based of the numbers you had indicated earlier.
And wondered if you could may be attributable, how break that down, because I think you gain a much share.
And then if that's going to be sustained over next quarter or do you expect to give a little back?
And some like you did with the enterprise side, may be give what your sort of target market share would be, you know, by the end of this year?
Matthew E. Massengill - CEO
Well -- make sure we are on the same page.
We didn't really gain all that much market share quarter-over-quarter.
We may have picked up a point or so from 21-22%.
We don't know if can see with the analysts and say in calendar Q4.
Based on what we've discussed for this quarter, I don't think we are gaining a whole lot of share this quarter.
Share is not an objective of this enterprise, nor will it be.
And so there is no share objective to tell you about.
What our objective is to consistently grow revenues and profits and generate cash.
Kevin Hunt - Analyst
Okay.
Thanks.
Operator
Thank you.
And once again as a reminder to ask a question, please press "" "1" on your touchtone phone.
Matthew E. Massengill - CEO
Are there any further questions?
Operator
Our next question is from William Lewis and please state your company name.
William Lewis - Analyst
J.P. Morgan.
A follow up on the shipments in the consumer electronics.
You talked about 7% of volumes which is, you know, roughly 700-1000 drives.
I am trying to understand that relative to what [CA] told this last week, they shift more or like 1.5m drives into the Xbox.
Do you think you still at a roughly equivalent share to them?
And or how would you explain or how could you potentially explain those differences?
Thanks.
Arif Shakeel - COO
Well, you know, I won't comment on quarter-to-quarter, as we have said before, during the contract period with our customer on the Xbox, we being given the particular share.
And it was given for the contract period not by quarter.
So there will some ups and downs, like there were several quarters to go in our favor and, perhaps, they shipped more units than us last quarter though.
It's more a quarterly thing than the contracts here, which was a couple of years.
William Lewis - Analyst
Okay.
Great.
Thank you.
Matthew E. Massengill - CEO
Thanks William.
Operator
And next question is from Naveen Bobba, simply state your company name.
Naveen Bobba - Analyst
One question, just one follow-up.
Matt, I want to go back to your comment on the recovery in IT spending.
I want to ask you what you are seeing in terms of increase in business from both channel and OEMs?
Because some of your OEM customers [inaudible] reflecting improvement in recovery yet.
Is it something which we are missing here, to settle to [being] in terms of recovery?
Matthew E. Massengill - CEO
Well, I think it is based on most of the comments that we have heard from the PC manufacturers as well as those major suppliers to it, is that while we are not seeing double digit growth in the PC market year-over-year.
I think that calendar Q4 did see some fairly decent growth in the business.
Some estimates were as high 15%, which I think is pretty fairly robust quarter.
I think we had been talking for sometime about the fact that eventually people will be replacing PCs in their enterprises as they wrestle with their 5-year-old PCs.
The rest of world is moving pretty rapidly.
So if we continue to assert that the PC industry is growing at a reasonable rate, and again perhaps not as high as it did in the past, we assume that we will see about 8% growth through the PC industry this year.
And so, you know, I think that might explain some of the [strains].
I think that it is important to separate the difference between revenue and units and perhaps some of the issues that are being described are revenue issues associated with, perhaps a deeper discounting or deeper pricing actions for those volumes on the PC front.
But from a component perspective, you know, we have seen reasonable demand in most of our channels, fairly consistent way through the year.
And we would anticipate that would be a little bit better this year.
Naveen Bobba - Analyst
Thank you.
Matthew E. Massengill - CEO
Thank you.
Operator
Thank you.
And our final question is from Mark Miller and please state your company name.
Mark Miller - Analyst
I am with Hoefer & Arnett.
Congratulation guys, what a quarter.
Couple of question, I apologize, a little communication issue before.
In Serial ATA transition, the [parallel] strategies that are going to be replacing, what do you see as the margin deferred?
Are you going to be able to sell these products with same margin or would the Serial ATA, have a lower margin?
Arif Shakeel - COO
This is Arif.
I think I'll take a guess at it.
I mean it will be -- if the margins are to be closed to the recovery margin and yet the pricing ought to be better than recovery.
So we ought to be more efficient in producing this drive giving you the same level of 24/7 reliability as well as performance and given our cost structure we ought to be able to charge you less and be able to make this a seem a level of book margin, you know approximately.
Mark Miller - Analyst
But that gives a similar level margin, still internally selling [parallels], because you drive yet so, be at lower margins, I mean that's my comparison point?
Arif Shakeel - COO
I'd say it would be where the balance of the margins are today.
Remember, the one thing you got to keep in mind -- you don't serve a very large market place.
So if we were to replace the mid range of that marketplace, than you ought to compare that to the mid range of the [inaudible] drives if you were.
Matthew E. Massengill - CEO
Okay, and if you did, you would be where we are thinking.
Mark Miller - Analyst
I saw a announcement last week, was a little surprising about you have been shipping 80 gig per platter recently.
I am wondering, if you had any 80 gig per platter ships in the December quarter, what percent of the total ships that was?
Matthew E. Massengill - CEO
We shipped a small number of drives in December.
Mark Miller - Analyst
Right.
And if I understand right, you are going from a small number of drives to where June quarter, it's almost going to be exclusively 80 gig per platter.
That strikes me, especially from what some people have said, as a very aggressive ramp.
But I am just wondering what's your feeling.
I know you feel you can do that, because you've said it.
But it just seems to go within less than 6 months from essentially close to 0 totals, the 100% seems very aggressive.
I am just wondering, any comments about that?
Matthew E. Massengill - CEO
All right, this is just -- mouthful of [inaudible] and I am sure it will to.
By traditional standards, this is a very fairly lethargic ground.
So, you know, in days of [your], we've managed to go from 0 to almost a 100% of our output in less than 90 days.
This ramp will work fairly similar to the 20- 40 gigabyte ramp, its actually got slightly elongated ramp than that.
We've started a bit later with the ramp than others have.
I think that gives us an opportunity and advantage.
And one of the things, we've learned in sort of the collective experience in this business is that when you introduce a drive too soon in the manufacturing, its very difficult to reach entitled yields over the program life.
So we've been very careful to introduce a product.
When we think we can build this -- the quality levels our customers anticipate and expect and we'll mitigate that ramp, will be dictated by our ability and our suppliers' ability to perform.
What we have given here is our best estimate as how long we think that will be and we feel pretty confident about that.
Arif Shakeel - COO
Let me just add something to it.
You said two sets.
I'll go with the first set first which is, you know, mind you [vertically] integrated suppliers do by the components from the same people.
The learning process has been going on since August.
That learning process has been transformed to us and just because we were not ramping the product in our factory, did not mean that we were not working diligently on processes, on the engineering part of the product.
And therefore we were preparing for it.
Mind you, different companies have different times they introduce the product into the factory.
We believe that our model was very well for our process.
So having said all that, I agree with Matt, as -- I believe our ramp is a little bit more conservative than it was when we were doing the 40 gigabytes.
The going from 0 to 100% in 6 months doesn't seems as big a deal to us as you may think.
Mark Miller - Analyst
Just one final question and I don't know if anybody wants to take a stand on this but I am going to try it anyway.
Your results and [Masters] results seem to be -- forecast from [Master] seem to be very similar in terms of units and revenue, change of revenue.
Yet [C8] is to be dramatically different.
Any thoughts on why [C8] seems to have -- to give you just an input, they are down 10-13% on units.
Any reason why they seem to be having a weaker March quarter than you guy, is this 80 gig?
Matthew E. Massengill - CEO
No we really don't -- wouldn't want to even try to take a guess at that.
Mark Miller - Analyst
Okay, I think at least try.
Again great quarter guys.
Matthew E. Massengill - CEO
Thanks Mark.
Operator
Thank you and this concludes today's question and answer session.
I would like to turn the call over to Mr. Matt Massengill
Matthew E. Massengill - CEO
Well thanks everybody for joining us.
We look forward to speaking with you after our fiscal Q3 results and thanks again to all the hardworking employees at Western Digital for a job well done.
Bye bye.
Operator
And this concludes today's conference you may disconnect at this time.