使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Good afternoon and thank you for standing by.
Welcome to Western Digital's Second Quarter Financial Results for Fiscal Year 2004. (Operator Instructions) Now I will turn the call over to Mr. Bob Blair.
You may begin.
Bob Blair - VP, Investor Relations
Thank you.
As we begin, I'd like to mention that during the course of this call we will be making forward-looking statements in our comments and in response to your questions concerning expected channel inventory levels, head production capacity, improvements in flexibility and leverage from our head operations, adoption of our 74 GB Serial ATA Drive by customers, shipment of a small form factor drive, growth opportunities and our current outlook on revenue gross margin, operating income, the net impact of interest income and tax expense and net income and earnings per share for the March quarter.
These forward-looking statements are based on Western Digital's current expectations, and actual results could differ materially as a result of several factors including pricing trends and actions by competitors, supply and demand conditions in the hard drive industry, changes in product and customer mix, uncertainties related to the development and introduction of products based on new technologies, difficulties in reducing yield losses from complex manufacturing processes, business conditions, and growth in the PC and personal entertainment industry, changes in availability and cost for specialized product components, and other factors listed in our recent SEC filings and in our Second Quarter Press Release issued today.
We undertake no obligation to update our forward-looking statements to reflect subsequent events or circumstances.
In addition, references may be made during this call to non-GAAP financial results.
Investors are encouraged to review these non-GAAP financial measures as well as the reconciliation of these measures to the comparable GAAP results in our Form 8-K filed with the SEC today, a copy of which can be found under the SEC filings link in the Investor Relations section of our Web site at www.westerndigital.com.
I'd now like to turn the call over to Chairman and Chief Executive Officer, Matt Massengill.
Matt Massengill - Chairman and CEO
Good afternoon, and thank you for joining us.
With me today are Arif Shakeel, President and Chief Operating Officer, and Scott Mercer, Chief Financial Officer.
Scott will review our second quarter financials and the outlook for the March quarter after my remarks.
The December quarter was a dynamic one for the hard drive industry, and I wanted to take a few moments at the outset of this call to provide our perspective on what has been happening in the industry.
As we outlined in our 8-K filings during the December quarter, the industry faced slower sell-through in the distribution channel earlier in the period due to an overhang of product entering the quarter, and this negatively affected the pricing and linearity over the course of those three months.
As noted earlier this week by Seagate, their shipments into the channel helped move channel inventory levels to the high side of the industry's manageable range of 4-6 weeks at quarter's end.
Today, based on independent proactive steps that the industry leaders appear to be taking to appropriately manage shipments in the seasonally softer March quarter, we are confident that channel inventories will be reduced this quarter.
Turning to our second quarter performance, we continued to demonstrate sustained profitability and growth through a focus on excellence in operational execution, quality and reliability of our products, and customer satisfaction, and we are pleased with our results.
We recorded revenue of $835 million, up 11% from last year and 17% from the September quarter.
We grew unit shipments to $12.7 million, up 23% year-over-year and up 12% sequentially.
Earnings per share were 32 cents.
Our head operation achieved the goal of being financially accretive to the business, solidly so, as we continued to ramp toward the capability of producing 30 million heads per quarter as we exit June.
We met the market's requirement for higher capacity drives with a richer product mix, with significant sequential unit growth in hard drives with capacity points between 100-250 GB.
The combination of the leverage from our head operation and the richer product mix helped partially offset more severe distribution channel pricing.
In fact, we expanded gross margins quarter-over-quarter.
We grew revenue sequentially in the Americas, Europe, and Asia.
We expanded unit shipments quarter-over-quarter for applications such as video entertainment, external hard drives for system backup and mass storage of digital media content, and Serial ATA Drives for the enterprise market.
Related to our head operation, we completed the final OEM qualifications with our internal 80 GB per platter technology.
I want to take a few moments to provide some additional color on our progress and some of our key areas of focus.
The head operation will continue to improve our operational flexibility and provide leverage to the business model in the quarters ahead as we ramp production and achieve excellence in operations.
We will be outlining this progress in more detail on February 5 when we host an investment community tour of our Fremont, California wafer fab facility.
Our strategic focus on Asia/Pacific, the computing industry's fastest growing major region, continues to pay off as we grew revenue there to $233 million based on penetration of emerging markets and reestablishing ourselves in developed markets there.
On the Serial ATA front, we continue to receive positive feedback from customers on our 36 GB and 74 GB WD Raptor drives, indicating that they value the speed and performance of these offerings, attributes heretofore only found on SCSI products.
We have just completed qualification and are shipping to Hewlett-Packard on the first generation 36 GB product, and we have completed qualification with another top-five OEM customer on the 74 GB WD Raptor.
You will recall that we announced Dell's qualification of the first generation WD Raptor back in October.
While this product created interest in an enterprise-class Serial ATA Drive, we believe the increased capacity and performance enhancements of the 74 GB version will generate more significant adoption by customers who sell into the enterprise space.
Turning to the market for notebook PC hard drives, we continued to be impressed with the growth opportunity here and the high level of interest from our major OEM customers for Western Digital to become a volume supplier in this segment.
We believe the scale, scope, reliability, and cost structures of the hard drive industries major independents are a natural fit for this high-volume growing market.
As indicated on our last conference call, our development effort for a smaller form factor drive is well underway with a goal of initial shipments before the end of this calendar year.
To date, the development team has met or exceeded all milestones for our mobile product.
The outlook for the hard drive industry in 2004 and beyond is very promising with several multi-year high-growth and high-volume opportunities.
Certainly one would argue that hard drive-based products were the star of the show at recent Consumer Electronics Show in Las Vegas, with drives everywhere in devices such as MP3 players, game consoles, portable video players, DVD recorders, and automobile applications.
On the commercial side, the increasing signs of a recovery in IT spending from the computing industry leaders are certainly encouraging for the hard drive industry.
In fact, I cannot remember a time when we faced a more promising set of opportunities in both consumer and commercial applications.
Clearly the key to our industry taking advantage of this promising scenario is to do so profitably and with a rational approach to the market opportunities at hand.
As the early adopter of many of the industry's best practices in the distribution channel, we have been encouraged with the independent steps recently taken or articulated by other industry leaders to improve the quality of information, inventory management, programs and incentives for the distribution channel.
In fact over the last four weeks, we have seen tangible evidence of significant changes in behavior that are having a favorable impact.
In summary, I think our industry and company are poised for a prosperous year in calendar 2004.
Our approach to the business will continue to be sustained, predictable, and balanced financial performance, taking care of our customers' needs.
With our business model, products, technology, growing markets, and customer relationships, we are well positioned.
Scott Mercer will now review the Q2 financial performance and provide our guidance.
Scott?
Scott Mercer - SVP and CFO
Thanks, Matt, and good afternoon, everyone.
Strong seasonal demand and outstanding execution by the Western Digital team enabled us to again deliver solid operational results.
Additionally our head manufacturing operations, as we expected, were solidly accretive to our fiscal Q2 earnings.
I'm also pleased to note that from a consistency of earnings point of view, this quarter represented the 13th consecutive quarter of profitable operations for our hard drive business.
This is a reflection of our team's outstanding focus and experience combined with solid improvements in hard drive industry dynamics over the last three years.
After providing details of our fiscal second quarter performance, I will provide an outlook for the March quarter.
Revenue for the quarter was 835 million, an increase of 11% from the prior year and 17% from the September quarter.
Unit shipments of 12.7 million represented an increase of 23% from the prior year and 12% from the September quarter.
Average selling prices were approximately $66 per unit, an increase of $3 per unit from the September quarter, reflecting the more favorable product mix Matt described.
Also, we shipped approximately 500,000 units to consumer electronics sector in the September quarter compared with 1.1 million units in the September quarter.
Revenue by channel was 51% OEM, 43% distribution, and 6% retail versus 53% OEM, 40% distribution, and 7% retail for the September quarter.
We had two greater-than-10% customers during the quarter - Dell and HP.
The Q2 geographic split of our business was 41% North America, 31% Europe, and 28% Asia as compared to 38%, 30%, and 32% respectively in the September quarter.
Our gross margin percentage for the quarter was 17%, up 350 basis points from the September quarter.
You will recall the gross margins for the September quarter included one-time charges totaling 18 million relating to the read/write acquisition.
Our gross margins for the December quarter included the accretive benefit of our head manufacturing operation.
Operating expenses for the quarter totaled 71 million or 8.4% of revenue.
Operating income was 71 million for the quarter, up 66 million from the September quarter, which included one-time charges related to the read/write acquisition.
Interest and taxes totaled 2.5 million, resulting in net income of 69 million or 32 cents per share.
This compares to net income for the prior year of 74 million or 36 cents per share.
Fully diluted shares outstanding were approximately 218 million, up about two million from the September quarter.
Before moving to the balance sheet, I would like to provide you with some information on the positive first-half results we've achieved.
For the six months ended December 2003, we generated revenue of 1.55 billion, an increase of 16% over the prior year period.
Net income on a GAAP basis was 74 million or 34 cents per diluted share including fiscal first-quarter one-time charges and expenses of 50 million related to the read/write acquisition.
Excluding these items and related tax effects, our non-GAAP net income for the current six-month period would have been 122 million or 56 cents per share, reflecting net income and EPS growth of 27% and 17% respectively.
These six-month results are a reflection of the continued growth opportunities for Western Digital and the hard drive industry.
Turning to the balance sheet, our cash balance at the end of the quarter was 318 million, up 33 million from the September quarter.
Cash generated from operations was 73 million for the quarter and was negatively impacted by the 45 million settlement paid to Cirrus Logic on October 16.
Capital expenditures were 44 million for the quarter, and our non-cash charges for depreciation and amortization totaled approximately 26 million.
Proceeds from auction exercises provided an additional four million.
Our cash conversion (inaudible) for the quarter was negative two days, consisting of 39 days of receivables, 21 days of inventory or 18 turn, and 62 days of payables outstanding.
That was a look back at our second fiscal quarter.
Now I will move on to our expectations for the March quarter.
We expect revenue to be between $715-750 million.
Our gross margin is expected to be approximately 16.5%.
Operating income is expected to be between 46-50 million.
The net of interest income and tax expense should be an expense of about two million.
Accordingly, we expect net income of between $44-48 million or earnings per share of 20-22 cents for the March quarter.
Our share count is expected to increase slightly as more options are exercised or make their way into diluted calculation.
You will not that we have not provided unit guidance nor will we in the future.
We focus on generating revenues and profits.
Units shipped are a byproduct of the various tactics we employ during a quarter to meet our revenue and margin goals.
Additionally, we think that focusing on units creates undue pressure to react to market share concern.
I'll now turn the call back to Matt to open it up for Q&A.
Thank you.
Matt Massengill - Chairman and CEO
Thank you, Scott.
Operator, could you please open the call for questions?
Operator
Ladies and gentlemen, we will now begin the question-and-answer portion of today's call. (Operator Instructions) One moment, please, for the first question.
Harry Blount, you may ask your question, and please state your company name.
Harry Blount - Analyst
Hi, it's Lehman Brothers.
Two questions - one is, Could you give us a little bit more of a sense on the head business - how accretive that was?
And secondly, if you could be a little bit more specific, perhaps, around ATA drives and the shipments that you saw there.
Thanks.
Scott Mercer - SVP and CFO
Harry, this is Scott.
We're not going to be, you know, too specific about how accretive the head business was, but if you look at the sequential performance quarter-to-quarter and keep in mind we had, I think, about 18 million in one-time charges in the September quarter in gross profit, if you normalize for that, we increased margins about 100 basis points or so sequentially in this pricing environment.
So I think it's pretty safe to assume that the heads operations were very beneficial in that increase.
Matt Massengill - Chairman and CEO
As far as the serial ATA drives are concerned, we aren't breaking that out, either, although we significantly improved our (inaudible) position quarter-to-quarter.
Harry Blount - Analyst
Great, thank you.
Operator
Mark Miller, you may ask your question, and please state your company name.
Mark Miller - Analyst
It's Mark Miller with Hoefer & Arnett.
Again, congratulations on another good results by a drive company.
Couple questions-it looked like you benefits compared to your competitors by getting an enriched OEM mix.
I was wondering - do you -- do you agree with that and do you expect to see a similar OEM distributor mix next quarter?
Matt Massengill - Chairman and CEO
I think our OEM -- just the mix has been running at about this range for awhile, so we were certainly pleased with our performance at our OEM customers and we are going to continue to expect to delivery those kinds of results in the future.
Mark Miller - Analyst
Next question - there's been a lot of confusion and a lot of talk about how bad pricing was, but we see the resulting crowd of our product mix and then where I see any huge decreases in blended ASPs.
I'm just wondering on an apples-to-apples basis concerning the desktop, (inaudible) estimated around mid-single digit percent decline last quarter.
What's your estimate on the actual erosion, you know, subtracting out these product mixed effects?
Arif Shakeel - President and COO
I think for the industry I think the price decline was pretty close to what Matthew said in the single digits.
Mark Miller - Analyst
Mid-single digits?
Arif Shakeel - President and COO
Yes.
Mark Miller - Analyst
OK, thanks.
Operator
Rich Kugele, you may ask your question, and please state your company name.
Rich Kugele - Analyst
Needham and Company, thank you.
First, I guess, can you give us a sense without getting too specifics here, what percentage of your drives may have shipped with WD heads?
And then the mix between 80 and 40, now, has that transition completed or do you expect a little bit more in the first quarter here - calendar quarter?
And then, you know, the obvious question about the current channel inventories for you.
Thanks.
Scott Mercer - SVP and CFO
Rich, this is Scott.
We're not going to comment on the mix of WD heads versus acquired heads.
Sorry.
Matt Massengill - Chairman and CEO
As far as 40 and 80 goes, the - 40 was still the most popular capacity selling by far last quarter.
We were pleased to see the number of drives shipping at 100 GB and above, actually those drives grew quite nicely which you would expect a fairly rich mix in a calendar Q4, given a more heavy consumer portion of that business.
And as far as the channel question, Arif?
Arif Shakeel - President and COO
Can you repeat that question one more time, please?
Rich Kugele - Analyst
Just where your current distribution channel inventories may stand and what you think the industry might be?
Arif Shakeel - President and COO
I believe our - I know our inventories is a very comfortable range of what we like to operate, which is between four and six weeks.
And I think the industry in the last several weeks - the actions that Matt talked about has brought the inventory to a more comfortable range than they were, like, three or four weeks ago.
So, as an industry I think we are really close to being within the comfortable range, I would say.
Rich Kugele - Analyst
And finally, I guess, what would you attribute the greatest - you know, the sequential decline here in gross margins, what are the primary reasons for that?
Matt Massengill - Chairman and CEO
Well, actually, our gross margins were up quarter-over-quarter.
Rich Kugele - Analyst
No, I mean in your guidance.
Matt Massengill - Chairman and CEO
Oh, moving forward?
Rich Kugele - Analyst
Yes.
Matt Massengill - Chairman and CEO
Well, you know, I think that clearly Q1 calendar is typically a seasonally softer quarter, so in general, demand is lower and volumes are lower.
I think that, you know, given the commentary that we heard as you did earlier in the week we felt that there was - it would be prudent to certainly position for that.
Obviously if you build fewer units in a quarter, it's more difficult to improve cost reductions at a rate that you'd like to.
So, I think all those factors moving together would build to that, but no significant concern about significant pricing action.
You know, in listening to all the commentary this week and some of the responses to that, I think that many have misinterpreted a lot of the comments that were made.
I mean I think that what the drive industry is saying is that we expect to have softer unit volumes quarter-over-quarter and that we are going to take prudent steps to manage channel inventories.
And I think that's having a more profound impact on earnings than the margins are.
Rich Kugele - Analyst
OK, thank you.
Operator
Gabriel Subiata, you may ask your question.
Please state your company name.
Gabriel Subiata - Analyst
Hi, thank you.
Deutsche Bank.
Thank you for taking my question.
In terms of your look at the channel, is your confidence let's say to execute in the channel based -- in addition to the industry's better management of the inventories -- based on the richer product drives and how should we kind of be thinking about the performance of the 100-250 GB drives in the distribution channel next quarter?
Was that kind of a key differentiator for you?
Matt Massengill - Chairman and CEO
Well, I don't if it was a key differentiator for us uniquely or not.
It's very difficult for us to say how we position relative to our competitors.
I think in general Q4 tends to buy a richer mix than any other quarter of the year and Q1 tends to be, you know, less rich based on buying behavior.
And so, I think that most of the channel dynamics we've discussed were relatively insensitive to capacity points, and that's just more good channel management practices that have continuously been improving as we move through the year and certainly as we got into the first part of this year.
Arif Shakeel - President and COO
I think perhaps retail may have played and usually does play a little bit bigger role in calendar Q4, which accounts for a little bit richer mix as you sell the product through the retail which is classified as distribution to us.
Gabriel Subiata - Analyst
OK, thank you.
Operator
Christian Schwab, you may ask your question, and please state your company name.
Christian Schwab - Analyst
Craig-Hallum - great quarter.
Matt, in order to go it to June, another seasonally weaker quarter, do we need to have distribution channel inventories below five weeks or do we need to have them near four weeks to mitigate any aggressive pricing pressure that could continue into the June quarter?
Matt Massengill - Chairman and CEO
Well, I mean I think that it's certainly helpful to have the weeks of inventory closer to the low end of the 4-6 range than the high end of the 4-6 range.
And perhaps even more importantly than the number of weeks is the absolute total number of drives that are out there depending on what happens with sell-through in late March and early April, you know, sometimes that can generate a fairly significant change to weeks in the sell-through.
So we're going to be focused on both the total number of drives and trying to manage to, you know, a rational number of weeks as we get out of the quarter.
Christian Schwab - Analyst
Great.
And the number of heads that you produced this quarter - are you going to break that out?
Matt Massengill - Chairman and CEO
No, we're not.
Christian Schwab - Analyst
Will we hear that in a few weeks?
Matt Massengill - Chairman and CEO
No, you won't.
Christian Schwab - Analyst
When - two quick questions - when do you plan to be operating in the new model -- more concerned about the gross margins and the 18-22%.
Do we need to see - do we need to get to the seasonally stronger part of the year in the back half of this calendar year?
Can you give us any directional comment there?
Scott Mercer - SVP and CFO
Christian, this is Scott.
As we said on the conference call, you know, 14-18, all else being equal - or, 18-22, rather, all else being equal versus the old model of 14-18.
You know, clearly this quarter, generally speaking from a pricing standpoint particularly in the channel, all else was not equal.
So, to get back into the higher end of that range, it'll require both execution on our part in terms of ramping our head production as well as a little better supply/demand environment.
Christian Schwab - Analyst
Great.
One last question - you know, to Matt's comment about the drive industry is really saying that the units are going to be softer quarter-over-quarter in line with seasonality, not to put you on the fence to give an exact unit number because you're not going to, but I would assume desktops are going to come in the seasonally 5-10%.
Do you - can you at least give a direction of which end of that you feel comfortable with?
Matt Massengill - Chairman and CEO
Well, I think that the - we should expect that the industry will be down some 5-10% for the quarter.
And we want to have the flexibility to manage our build plan to achieve the goals for our inventory positions in the channels.
And whether or not we are within that range will be determined by how the overall industry responds to that.
Christian Schwab - Analyst
Great, thank you.
Matt Massengill - Chairman and CEO
You bet.
Operator
Thank you.
Kevin Hunt, you may ask your question, and please state your company name.
Kevin Hunt - Analyst
Hi, Thomas Weisel Partners.
A couple questions - first, you guys gave us some update in the middle of December, and it looks like you did better than that on both the revenue and the earnings per share.
I was wondering if there was any kind of a pickup that you saw at the end which contributed to that.
And then, secondly, had just a follow-up on this ASP and the gross margin question.
I'm still, I guess, a little confused on this ASP.
I mean you were 4%, and I realize there's some mix to higher capacity drives, but you pretty much just said 40 GB was still the predominant drive.
So I can't - I fail to see how you could have had that much of a mix shift to drive up 4% ASPs for the quarter.
And then, looking at your gross margin, I mean it was definitely up from last quarter, but it was down from what originally you guided, and wouldn't have that richer OEM - or, rather - sorry, that richer capacity point mix have contributed to better gross margins?
And I guess I'll just stop there.
Matt Massengill - Chairman and CEO
Let me take that question, and then I'll have Scott answer the first part of your question, which you may have to repeat.
The - what we had indicated when we provided information on our 8-K and subsequent conference discussions about our margins being softer than our original expectation was due to the linearity of shipments in the quarter.
So while we were able to ship a nice, rich mix of products, many of those drives were sold into the channel in particular later in the quarter than we would have hoped.
And as a result, the pricing that we were able to garner with those drives later in the quarter was much lower than we would have hoped for even though they were richer mix products.
The result of that was to provide lower gross margins than our original plan.
Our margins were still higher than the prior quarter on a normalized basis, but not as high as we would have originally hoped them to be.
So it's not inconsistent at all that we would have an increase in ASP based on a richer mix and because of when we shipped those drives, it affected the gross margin versus our original plan.
And could you repeat the first part of your question?
Kevin Hunt - Analyst
Just a quick clarification on that one - so, wouldn't shipping later in the quarter also impact your ASP since you're shipping at a lower price point?
Matt Massengill - Chairman and CEO
We shipped a richer mix of product at lower prices than we had hoped, but it helped our overall ASP.
Scott Mercer - SVP and CFO
Kevin, this is Scott.
Even though the 40 GB was still the single biggest point capacity, it was down sequentially from the September quarter in terms of its percentage of the mix.
So you know, it's still the biggest single drive shipping in terms of units, but it's down sequentially and it will continue to be down as we go forward.
And in terms of strength exiting the quarter, we did see - as Matt said, it was less linear than we thought - or, had anticipated coming in - and we did see strength at the end of December - a little, you know, some pretty good strength exiting.
So, ...
Kevin Hunt - Analyst
OK.
All right.
Actually one just to follow-up, too - I mean clearly you guys have the best numbers in the quarter and not that you want to talk about market share, but you obviously gained market share if you just look at the numbers.
So is there something that was happening that's causing that?
Or what -- ?
Matt Massengill - Chairman and CEO
Well, I think that - I think rather than looking at any one quarter, you've got to take a look at the six-month period ending in December.
And, you know, we gave up quite a bit of share in the September quarter due to what we felt was perhaps over exuberant shipments into the distribution channel that didn't look like good business for us.
And we executed very well in calendar Q4.
We had a good business with our OEM customers.
We had a balanced business with the distribution business.
I think if you look at the numbers for all of us for the six months ending, there wasn't a whole lot of share change.
I think a lot of that shared growth in Q3 calendar by our competitors was somewhat artificial, and so I think that our numbers more closely reflected market.
Kevin Hunt - Analyst
OK, thanks a lot, guys.
Matt Massengill - Chairman and CEO
Thank you.
Operator
Thank you.
Navine Bhabha, you may ask your question, and please state your company name.
Navine Bhabha - Analyst
Bear, Stearns - thank you and nice results.
Good job on (inaudible), guys.
Matt Massengill - Chairman and CEO
Thanks.
Navine Bhabha - Analyst
First of all, two questions - Matt, can you talk about demand so far in the quarter both in terms of OEM and the channel sell-through.
And second, given the efforts to pin down inventories, what are you expecting for linearity in the quarter?
Matt Massengill - Chairman and CEO
Well, as far as demand goes, I think that we would describe this as a typical calendar Q1 seasonal quarter.
It's too early to make any other judgments about that.
You know, we've had some Q1s that have been a lot better than others, but on par, you expect Q1 to be softer, and this quarter would be no exception.
So I don't thing there's any surprises in the demand we've seen so far.
And as far as the effect on linearity, I think that we'll have to kind of keep an eye on that to see how the channel inventories are being managed, but I don't imagine that we will set any land records for linearity this quarter.
I don't there'll be anything remarkably difficult about it, I just don't think it'll be a - you know, the best linearity we have nor do I believe it'll be the worst linearity, either.
Navine Bhabha - Analyst
OK, thank you.
Operator
Thank you.
Cynthia Hiponia, you may ask your question.
Please state your company name.
Cynthia Hiponia - Analyst
Yes, it's Cynthia Hiponia at Smith Barney.
Matt, when I look at trying to figure out your opportunity in the CE side of the business, and have you guys announced qualifications with any of the PDR or digital set-top box manufacturers such as Scientific Atlanta or Motorola or what's your progress there?
And then I have another question.
Arif Shakeel - President and COO
This is Arif.
We are making tremendous progress just above and beyond the means that you have mentioned in the DVR and DBR.
And we are in shipment with more than the people that you have mentioned.
As we gain share with the customers that we have already qualified our products, you'll see our progress get better throughout the year.
Cynthia Hiponia - Analyst
Have you announced who those vendors are?
Arif Shakeel - President and COO
We have not announced the customers at this particular moment as to who we're shipping to.
Cynthia Hiponia - Analyst
OK, thank you, Arif.
And Matt, getting back to Kevin's question, I guess, when I try to understand your mix shift and you saw a greater number of 100 GB capacity and above, I guess, was this specifically related to the consumer desktop area or was this, you saw greater shipments of your external storage products?
I guess I'm trying to figure out how that will be impacted as we see your consumer orientation mix change in the March quarter?
Matt Massengill - Chairman and CEO
I think both consumer PC purchases as well as external drives influenced those shipments.
And from that perspective, I think we would expect to continue to see strength in the external drive shipment category.
And I think you should expect to see a typical Q4 to Q1 buying pattern on the consumer PC front, although we do believe that calendar 2004 is going to be a decent demand year for PCs in general, both commercial and consumer.
Cynthia Hiponia - Analyst
So when I look at your ASPs quarter-over-quarter, will your mix on 100 GB go down quarter-over-quarter?
Matt Massengill - Chairman and CEO
We would expect that our mix of product in calendar Q1 will not be - we certainly won't mix up to the extent that we did in calendar Q4, and we'll have to wait and see how that plays out.
But I wouldn't expect any significant mix-up in this quarter.
Cynthia Hiponia - Analyst
Great.
Thank you.
Operator
Thank you.
Rob Chira, you may ask your question, and please state your company name.
Robert Chira - Analyst
Hi.
Thanks very much - Fulcrum.
Three different things if that's all right.
One, I just wasn't sure - do you guys stay where you were on if you exited the quarter at your 100% ramp on 80 GB per-platter and everything other than Xbox which was your target?
Assuming you did, but wasn't sure.
Secondly, you said, Matt, that you felt good about your OEM channel mix and - versus channel mix, I just wasn't sure.
If you look at the numbers it looks like your distribution business was up more than twice your OEM on a quarter-to-quarter basis.
And I realize your September quarter dynamic was the opposite, but it just seemed a little strange given that it was a quarter where (inaudible) inventories were one of the market's bigger problems.
And then lastly, if it's OK, within that 500,000 consumer electronics drive, is that still sort of at least 90%-plus Xbox or have you made - can you give us any kind of an idea of the PDR mix there?
Thanks very much.
Sorry for all the questions.
Matt Massengill - Chairman and CEO
Sure, no problem.
On the 80 GB question, we were in a position to ship 100% of our PC business as 80 GB product as we exited the quarter.
We had more than one significant OEM customer that specifically requested once again 40 GB shipments to help them maintain and manage a quality metric within their business, which we accommodated.
We will continue to do that to the extent that it fits within our business model.
And as far as we're concerned, our transition to 80-GB-per-platter is through and aren't going to provide any more details than that moving forward.
As far as the OEM-to-channel mix goes, this - in calendar Q4 from a market demand standpoint, it is traditionally a stronger quarter for the channel.
And keep in mind that since we didn't over-ship product in our calendar Q3, our fiscal Q1, it gave us the opportunity to have a full quarter to ship product into, in calendar Q4, our fiscal Q2.
And so, I think that that means that our mix looked more like the overall market within the quarter than perhaps others.
I think it's - Q2's performance is about what you'd expect on an OEM versus channel split.
And on the Xbox question, we haven't broken that out.
Scott, I don't know if you want to provide any more ...
Scott Mercer - SVP and CFO
Yes, I'd just say that a significant portion of those units were non-Xbox units, Rob.
Robert Chira - Analyst
OK.
Great.
Thanks very much.
Matt Massengill - Chairman and CEO
Thank you.
Operator
Thank you. (Operator Instructions)
Mark Moskowitz, you may ask your question, and please state your company name.
Mark Moskowitz - Analyst
Yes, hi.
J.P. Morgan.
Thanks.
Firstly, getting back to 80 GB, at what point do you expect 80 GB capacity to be the highest shipment product?
And secondly, with respect to the head business, has your CAPEX outlook changed at all in the recent weeks?
And what about the perpendicular recording?
You know, there is a push by others in the industry to get that going here in the mid-term, is that going to change your CAPEX with respect to your head business?
And then lastly, was wondering what your thoughts were in terms of how we should think about Serial ATA?
Any significant revenue on driver in the future as far as when do you plan to ever break that out separately, from a units perspective?
Matt Massengill - Chairman and CEO
OK.
As far as the 80 GB as the leading capacity point sold in the industry, we'll have to wait and see and let the market guide that.
As we said before, the 40 GB continues to be the most popular capacity point selling.
I would wonder and doubt that the 80 GB would surpass the 40 in this quarter, based on what we've seen last quarter.
And over time, it continues to build traction, and at some point that will happen.
I've been encouraged to see that we have not seen the collapse of pricing on the 80- GB on top of the 40, which I think shows a tremendous amount of restraint for the industry, to better match what customer demand profiles look like.
So, we'll just have to kind of watch that moving forward.
It's very clear that customers are buying capacity points - existing capacity points - much longer than they ever did, which would indicate to us that when the 80 does become the largest capacity selling, it's going to be a product of great interest for quite some time.
As far as the CAPEX is concerned - Scott.
Scott Mercer - SVP and CFO
Yes, Mark, we haven't really changed any of our outlook on how we're going to be spending CAPEX, and remain in the 140 to 160 range for the fiscal year.
Matt Massengill - Chairman and CEO
And, Arif, as far as the impact on CAPEX, the perpendicular recording.
Arif Shakeel - President and COO
Yes, well, let me first give you a quick update in the sense that, you know, as Matt talked about, we'll be giving you a detailed update early part of next month on our head business in Freemont, California.
But we talked several times, that as we acquired the read-write business, we looked at their perpendicular recording programs, and we were quite comfortable.
We have beefed up those programs, and we feel very comfortable that when the perpendicular recording makes sense in the marketplace, we'll be there with most anybody else.
So, we're very comfortable with that program, yet we're not hanging all our hats on that to be the next methodology we'll get to the next arial (ph) density.
But that's one thing that we may think - very good investment, and we're very happy with the progress we're making.
Matt Massengill - Chairman and CEO
And as far as the Serial ATA breakout, when it's material to break that out as a separate line item, we'll certainly do that.
But, again, we are making significant traction in the Serial ATA business, both 10,000 rpm and 7,200 rpm, servicing an array of product categories from high-end workstations all the way up through server-based products.
Mark Moskowitz - Analyst
Great.
Thanks.
Matt Massengill - Chairman and CEO
Thank you.
Operator
Thank you.
Laura Diamond (ph), you may ask your question, and please state your company name.
Laura Diamond - Analyst
Robert Baird.
A couple of questions.
First of all, can you talk a little bit more about your ATA business, particularly as it relates to the enterprise?
I think, most of what you've talked about has been desktop?
Matt Massengill - Chairman and CEO
OK, well I'll have Arif ...
Arif Shakeel - President and COO
Yes, let me jump.
Most of the stuff that we have talked about has been, as a matter of fact, the enterprise class product - enterprise shipments.
A very small portion of that has been in the workstations.
So, the shipment of Serial ATA drives from Western Digital, both in the 7,200 rpm, and specifically the 10,000 rpm, have been targeted and are being very successful in the enterprise product family.
And a smaller portion of them have been utilized in the workstation products.
Matt Massengill - Chairman and CEO
And while workstation products aren't servers, I will tell you that to get qualified in a workstation product at a major OEM is an enterprise-class qualification.
And so, it certainly is the first step towards having the product accepted in other enterprise applications within the organization.
Laura Diamond - Analyst
OK.
And then my second question, in consumer electronics, could you just explain why that went down sequentially?
Matt Massengill - Chairman and CEO
Yes.
The biggest impact there, obviously, was Xbox related.
And I think, as we indicated, the Xbox build does roll over in calendar Q4.
Their peak build is in calendar Q3, as they prepare their products for shipments into the retail channel, and then soften that build.
Our position actually improved with the Xbox business quarter-over-quarter, even though the unit volumes were down.
Laura Diamond - Analyst
OK.
And then finally, just in terms of your guidance for interest and other income, I mean, it looks like that you also guided for basically zero next quarter.
How should we think about it in our models going forward after next quarter?
Scott Mercer - SVP and CFO
Not a bad way to continue to look at it.
Laura Diamond - Analyst
All right.
Thank you.
Operator
Thank you.
Mark Miller, you may ask your question, and please state your company name.
Mark Miller - Analyst
Hoefer and Arnett again.
And as you said, you believe positive steps are being taken to get rid of the inventory.
Are you doing anything like reducing operations in your manufacturing plants?
Or do you see that in any of your competitors?
We're hearing - we keep on hearing that component plants are just almost running 100 percent capacity.
And I'm just wondering what tangible things you feel are being done in the industry?
Matt Massengill - Chairman and CEO
Well, again, I can only - we can certainly speak for ourselves.
And we can assume, based on the guidance and commentary that we've heard from others in the industry this week, that I think we all recognize that the market will be down this quarter.
And I would imagine that individual build plans, when summed together, would reflect a reduction in build.
And I can't comment on individual component manufacturers' build plans or what they're doing or how they're being driven to that plan.
But I would imagine that we will see a reduction in the overall number of units that the drive industry supplies the market, this quarter from last.
Mark Miller - Analyst
Thank you.
Operator
Harry Blount, you may ask your question, and please state your company name.
Harry Blount - Analyst
Hi.
Lehman Brothers.
Two questions.
One is to dovetail off the last question, which is, just in terms of getting better information on a more timely basis and from the distribution channel, can you maybe talk about some of the steps you guys are taking, or are aware of from an industry standpoint to help?
And then second, could you give me the percentage of 7,200 rpm shipped in the quarter?
Arif Shakeel - President and COO
OK, let me address the first question.
We have talked about this several times.
We have always been getting data, and we continue to push the envelope of getting timely data.
We feel very comfortable that the decisions that we make are based on very timely data.
We know, literally, on a Tuesday morning or a Monday morning, what happened last week, how much inventory is sitting where, and what steps we have to take, both in pricing as well as shipments are concerned.
And I'm pleased to say that I see that the entire industry is now acting in a fashion that they must have the same kind of data that we have.
So the actions that I take, both in pricing as well as shipment, indicate that everybody is completely up to snuff from a timing perspective, from the inventory in the distribution channels.
Harry Blount - Analyst
And Arif, just to clarify, though, I mean, what - my understanding is that there's been some steps to move towards electronic updates, instead of direct electronic bonding, and make that a qualification.
Where is that at?
Arif Shakeel - President and COO
We have made significant progress.
We're not completely done, but we've made very good progress.
So, we feel very comfortable with the electronic data that we get and the processes that we have set in place.
Between those two we get extremely good data by the weekend.
Harry Blount - Analyst
And that's auditable data?
Arif Shakeel - President and COO
Absolutely.
Scott Mercer - SVP and CFO
Harry, this is Scott here.
We have a very active audit program, using external resources to go in on a random basis all over the world, all over the globe, auditing our distributors.
Matt Massengill - Chairman and CEO
Yes, I think that's a key point, is that, not only do you take the information they provide you - and it's great if it's electronic.
But if it was inaccurate to begin with, you just get the bad data faster that way.
So, you have to get out there and touch the drives and count them, and make sure that the ...
Scott Mercer - SVP and CFO
You trust, but verify these good companies - good customers.
Matt Massengill - Chairman and CEO
I think secondly what you've seen - WD for a long time has had a very broad distribution customer base.
And we've done so intentionally to ensure that we can reach the final customer - the integrator, the value-added reseller and the dealer, which are - who are our target customers.
Our distributors are a channel to reach those customers.
Our philosophy has been for a long time, that by having a larger number of distributors, it is more likely that we will reach those direct customers, and less likely that we will get there through a broker, who tend to be problematic in this industry.
We are encouraged, actually, by the steps that we've seen by our competitors, who appear to be expanding their customer base, and essentially, helping to eliminate the broker sales channel, which is a big, big step in improving the marketplace.
Scott Mercer - SVP and CFO
Harry, 7,200 rpm was about 70 percent of our unit volume.
Harry Blount - Analyst
Great.
Thank you.
Matt Massengill - Chairman and CEO
Thank you.
Operator
I would now like to turn the call over to Mr. Matt Massengill.
Matt Massengill - Chairman and CEO
Thank you very much.
We appreciate your listening in today, and we look forward to updating you on our progress next quarter.