威騰電子 (WDC) 2015 Q1 法說會逐字稿

Good afternoon and thank you for standing by.

Welcome to Western Digital's first-quarter financial results for FY15.

(Operator Instructions)

As a reminder, this call is being recorded.

Now I'll turn the call over to Mr. Bob Blair, you may begin.

Thank you.

I want to mention at the outset that will we will be making forward-looking statements in our comments and in response to your questions concerning, among others, our position in the growth of data and the storage ecosystem, the growth areas in storage, our investment focus, our product offerings and our customers responses to those offerings, and our financial performance including our financial results expectations for the December quarter.

These forward-looking statements are based on Management's current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including those listed in our 10-K filed with the SEC on August 15, 2014.

We undertake no obligation to update our forward-looking statements to reflect new information or events.

In addition, references will be made during this call to non-GAAP financial measures.

Reconciliations of the differences between the historical non-GAAP measures we provide to the comparable GAAP financial measures are included in the quarterly fact sheet posted in the investor relations section of our website.

The guidance we provide during this call excludes amortization of intangibles related to the acquisitions of HGST, sTec, VeloBit and Virident, employee termination, asset impairment and other charges and charges related to litigation.

Because the amount of these items is not fully known to us at this time, we are unable to provide guidance for or a reconciliation to the most directly comparable GAAP financial measures.

The impact of these excluded items may cause the estimated non-GAAP financial measures to differ materially from the comparable GAAP financial measures.

We asked participants to limit themselves today to a single question and one follow-up question during our Q&A section of the call.

I also want to note that copies of remarks from this call will be available on the investor section of the Western Digital's website immediately following the conclusion of the call.

And now I'd like to turn the call over to Steve Milligan, President and Chief Executive Officer.

Good afternoon and thank you for joining us.

After my opening remarks, Olivier Leonetti will provide additional commentary on our September quarter performance and our outlook for the December quarter.

Olivier joined Western Digital in early September as Chief Financial Officer.

He is a welcome addition to our team with many years of global finance experience both at Amgen and Dell.

I want to thank and acknowledge our former CFO, Tim Leyden, for his 24 years of leadership and service at Western Digital, and we wish him the best in his retirement starting the first of the year.

As anticipated, market demand improved in the September quarter and we achieved strong revenue, EPS and gross margin performance.

We also continued to generate healthy cash flow.

The diversified nature of our business, coupled with the ongoing secular growth in data and our crisp execution, continue to allow us to demonstrate strong and consistent financial performance.

We expect this trend will continue.

For the September quarter, the industry TAM came in at the higher end of expectations.

This reflected quarter-over-quarter growth in capacity enterprise, clients, branded and consumer electronics and stable demand in performance enterprise.

We saw these same trends in our own business with notable strength in our client, capacity enterprise and flash platform solutions businesses.

The latter of which includes our expanding lineup of enterprise class SSDs.

The industry demand outlook for the December quarter reflects a modest sequential decline with moderation in client and CE, partially offset by continued strength in capacity enterprise and branded and steady demand in performance enterprise.

We believe industry supply and demand and associated inventory levels remain balanced.

Looking at our business for the December quarter, we see these same trends, moderation in client and CE, strong momentum in branded and capacity enterprise, as well as in our flash-related business and continued steadiness and performance enterprise.

As a Company at the center of the storage industry, this is an exciting time for Western Digital.

There is tremendous change underway in how and where value will be created.

All around us, the storage ecosystem is transforming with ongoing focus on how data is stored, accessed, protected, and how it is being used and monetized.

All of these changes are driving a diverse set of needs for our customers and opportunities for our Company.

We are working with our customers and partners to help extract more and more value from data in an innovative and cost-effective manner across our full spectrum of products.

I continue to be encouraged by our broad-based strategy, both in terms of our financial results and customer feedback.

For instance, our flash platform solutions group resumed its faster than industry growth trajectory with revenue of $156 million for the September quarter.

We remain on track to achieve accretive earnings for this business early in calendar 2015.

Our broad line up of high-capacity hard drives based on our proprietary HelioSeal platform has been wary well received by both traditional enterprise and hyperscale data center customers.

Including the new 8 terabyte and 10 terabyte models announced last month.

We recently shipped our one millionth WD Purple hard drive architected to address the high-growth space of security, surveillance, video applications.

Governments and other large organizations increasing use of video and digital network cameras is driving a huge need for high-resolution recording.

Our enterprise customers have responded very positively to our newly announced active archive offering from our newly formed elastic storage group.

And in the personal Cloud, we continue to grow on My Cloud business with expansion in all geographies addressing consumer and prosumer markets.

Olivier will now review our first-quarter results and cover our outlook for the December quarter.

Thank you, Steve, and delighted to be part of the team.

Expected seasonal demand and consistent execution efforts exceed financial expectations in the September quarter.

Industry shipments were in line with the time implied in our guidance provided in July.

In our business, we saw the (inaudible) seasonal increase in demand for client and branded products as well as strength in capacity enterprise and continued steady demand in performance enterprise.

Aggregated channel inventories of Western Digital projects remain at the low end of our four to six-week range.

Revenue for the September quarter was $3.9 billion, this included $156 million in revenue related to our flash platforms group which includes enterprise SSDs.

As a reminder, we continue to expect that our flash-related revenue growth will outpace the growth rate of the industry.

We shipped a total of 64.7 million hard drives at an average selling price of $58.

The quarter-over-quarter increase in overall ASP was driven by business mix consistent with the signal improvement in client, branded and the strength in capacity enterprise.

Our gross margin was 29.1%.

Our non-GAAP gross margin was 30.1% which was better than our implied guidance due to business mix.

This excludes $39 million of amortization of intangibles.

Operating expenses totaled $680 million.

Our non-GAAP operating expense was $638 million, excluding $42 million of amortization of intangibles, litigation charges and employee termination costs.

The additional expenses to our guidance primarily relates to incentive compensation and stock appreciation rights.

Our net income totaled $423 million or $1.76 per share.

On a non-GAAP basis, net income was $504 million, or $2.10 a share.

Turning to the balance sheet, in our 14-week quarter we generated $827 million in cash from operations and our free cash flow totaled $667 million.

Our CapEx totaled $160 million, or 4% of revenue.

We repurchased 2.2 million shares for $223 million.

We also declared a dividend in the amount of $0.40 per share.

We closed Q1 with total cash and cash equivalents of $5.2 billion of which approximately $1.2 billion was held in the US.

I will now provide our guidance for the December quarter.

We expect revenue to be in the range of $3.75 billion to $3.85 billion.

Gross margin to be flat with the December quarter level of 30% excluding the amortization of intangibles.

R&D and SG&A spending of approximately $600 million excluding the amortization of intangibles.

The tax rate of approximately 8% and a share count of approximately 238 million.

Accordingly, we estimate non-GAAP earnings per share of between $2 and $2.10 for the December quarter.

Operator, we're now ready to open the call for questions.

(Operator Instructions)

Sherri Scribner, Deutsche Bank.

I was hoping you could go through the puts and takes on the gross margin guidance for the fourth quarter.

I would think with the client business being maybe a bit softer you'd have better mix in the quarter, so was just trying to understand that a bit better.

Thanks.

So if you look at it Sherri, this is Steve, you were going to take a small absorption hit in terms of lower volumes that'll we offset by favorable mix in terms of capacity enterprise.

And certainly we will -- we'll see a little bit -- client margins tend to be a little bit lower than the corporate average as a general statement.

But on balance, things net out to the extent that we think that our margins will be flat quarter-on-quarter.

Okay, thanks, Steve.

That's helpful.

And then it's been a while since your last Analyst Day.

I wanted to see if you could provide an update on your priorities for cash in terms of how much you expect to use for buybacks and your plans to increase the dividend.

Thank you.

So we continue to be committed to the capital allocation plan that we announced back in September of 2012 in terms of 50% of our free cash flow being returned to shareholders.

And the rest to be I will call it held in reserve for potential strategic opportunities.

As we look at the changes that we've see in the storage ecosystem we continue to think that there are opportunities for us to I'll say expand our footprint in terms of the storage industry and ways that not only add value for our customers but also add value for our shareholders.

So at present, we are sticking with that capital allocation plan.

Of course we periodically review that as part of our overall review of our strategic priorities, but at this point there's now intended change in our capital allocation plans.

Ananda Baruah, Brean Capital.

Congrats on a really solid quarter and Olivier welcome.

Two if I could both on data center and Cloud.

So the SSD revenue was quite strong sequentially this quarter.

Could you talk to what degree that was related to hyperscale build outs which you guys had talked to expecting?

And to what degree are they related to OEM product refreshes?

And then I have a follow up in that regard as well.

Thanks.

Sure, let me paint it in a broader picture.

We are seeing broad-based strength in terms of the broader enterprise business both in terms of traditional customers as well as in hyperscale data center customers both in terms of our capacity enterprise business which we saw a nice pick up this past quarter.

We expect that momentum to continue into the December quarter.

And correspondingly we're also seeing as you indicated strong strength in our enterprise SSD business.

That is really I'll call it across the board.

And really speaks to the strength of our product line of both in terms of -- well really across the board.

Performance enterprise, capacity enterprise as well as in terms of enterprise SSD.

We clearly have the broadest product line in the industry.

And not only that do we have the broadest products but we arguably believe that we've got very strong performance from a product standpoint as well.

So that's being reflected in our performance as well as the build out that we're continuing to see from a customer perspective.

Steve that's really helpful context, I appreciate it.

And in that regard, how are you guys thinking about the cadence of hyperscale deployment as we get into the first half of the year given there's a lot of, I call it lack of [energy] pent-up demand coming in the second half of the year?

And then also what -- how are you guys thinking about the, I don't know, the adoption curve just in enterprise, tried and true enterprise, given that second half of the year is a heavy product cycle, second half for the OEMs?

Thanks.

Sure.

We have I will call it increasing visibility.

Obviously we have good visibility for that December quarter at present in terms of what we see from the demand perspective.

We are increasing -- we get increasing visibility on what's going to happen in the first part of 2015.

And we believe that strength will continue from an industry perspective as well as from our perspective in the broader enterprise space through the first half of calendar 2015.

Thanks a lot.

Aaron Rakers, Stifel.

A couple as well.

So first of all I want to go a little bit deeper in terms of the portfolio difference between you and Seagate.

I think one of the things that we've started to see as a pretty good adoption of your helium drives.

I think Seagate though has a very strong growth in their high-capacity drives as well.

Can you talk a little bit about the competitive landscape, what you feel your share position is within these Cloud and hyperscale guys?

And then with that how you're seeing the adoption rate pick up with regard to the helium drives.

We're seeing -- Aaron, we're seeing strong momentum in terms of adoption of our helium-based drives not only in terms of 6 terabyte but substantial interest and adoption of the 8 terabyte as well.

And so we feel very good about where we're positioned particularly with the hyperscale guys.

It's a little bit more difficult to know exactly what our share position is.

But we feel very comfortable with where we're at from a customer and from a competitive product prospective recognizing the fact that Seagate is a formidable competitor.

But we feel very good about where we're positioned right now.

Okay.

And then as the follow up, we can -- while there's not a lot of questions right now with regard to MOFCOM, I think it's still obviously an important variable to consider in the model.

So maybe if you can give us an update where you stand with regard to the dialogue with MOFCOM?

And is there any kind of updated views on expectations with regard to the timing of a decision on MOFCOM and as your opinions or views change on a potential synergy opportunities being able to integrate Hitachi?

Thank you.

So Aaron, no specific update that's any different than what I provided last quarter.

Our dialogue with MOFCOM continues.

It continues to be constructive and it continues to be active.

And so I was in China a couple weeks ago and met with MOFCOM.

And as I indicated, we continue to have a discussion about our situation, the process that they will use from a review perspective, the I'll call it parameters that they will use it to evaluate our application.

And so we, although maybe a bit discouraged you might say in terms of the timing, we are positive about our ongoing dialogue with China with the Anti-monopoly Bureau.

They have not provided any indication as to specific timing.

I think one of the things that we have to recognize is that the whole separate remedy that was imposed was a new remedy.

It was not something that they had done before.

The reapplication to have it lifted is therefore by definition also a new process and an undefined process.

And the Chinese are being very deliberate with that review.

We respect that.

And like I said, we may be a bit frustrated in terms of we certainly would like them to move faster, but at present we continue to be encouraged by the constructive nature of our dialogue.

Thank you very much.

James Kisner, Jefferies.

First on helium, wanted to understand if you had any capacity constraints at all, were you able to meet all demand for helium drives?

No capacity constraints related to our helium-based drives.

Great, and separately mathematically it seems like you may be losing a little bit of share near term on notebooks.

Could you comment on that as skepticism you're seeing, is this a quarter-to-quarter perturbation or what do you think?

Yes, so if you look at our share over the last several quarters, we have had the -- we've been up and down maybe a point or two.

If you recall last quarter or two quarters ago, so the June quarter, we gained two points of market share.

This quarter we lost I believe about 170 basis points.

So this tends to be the normal ebb and flow that occurs in our business from a share perspective.

And as you -- as was indicated yesterday on our largest competitors call, they took some incremental business or were provided some incremental business in the gaming segment.

That drove a reasonable amount from what we can gather of their share increase and correspondingly drove the lions share of our market share decline.

And also you can see that that was lower margins business and perpetuated itself in our respective financial performance.

Okay.

Thank you.

Rich Kugele, Needham & Company.

A couple questions.

First to close the loop on the settlement with Seagate, I assume that that payment came from offshore cash, right?

And is there any change to how you're viewing your own capital deployment strategy to shareholders?

So let me take this one.

You're right, the settlement was paid out of offshore cash and other classification also we distributed 50% of our free cash for this quarter which is consistent with what we have done over the last two years.

Now in the short run, excluding the recent arbitration payment from our calculation we reserved [a nice] exceeding our capital allocation target.

And we expect our Board to review this matter next week during its regular meeting and we will update you at that time.

Okay.

And then actually in that vein, Olivier, how do you view the balance sheet?

What do you think is the right type of cash balance to run the two operations as you move forward?

It's a question we ask a lot as you can see on our balance sheet our cash balances are strong.

We have about $1.2 billion of cash in our US bank account and also a leverage ratio which is pretty low at [0.7%].

As Steve indicated earlier, we believe that the current allocation 50% of free cash flow is a good balance to reward our shareholders today but to reward our shareholders tomorrow by keeping investing in the business.

So we believe we are today -- we're looking at that we're going to be but we believe it's a balanced situation.

Okay.

Then lastly geographically, the Americas ticked up nicely while Asia was down at the -- at least as a percent of the total.

And I'm wondering if that's tied into your enterprise strength as the US data centers deploy a lot of high test drive, is that how we should view it?

That would be part of it and also it's also branded with strong -- with a lot of that business being in the US.

So it's in that regard there's a bit of seasonality playing into it.

Okay.

Excellent, thank you.

Harlan Sur, JPMorgan.

Nice job on the quarterly execution.

Your flash business obviously showed some nice acceleration here, up I think almost 40% sequentially.

Came in number one in SaaS SSG, you've got a competitive PCIe offering.

From a product perspective, what's driving the pickup here, is it both SaaS and PCIe?

Any color here would be appreciated and maybe a quick update on your SATA flash strategy.

Sure.

So the primary motive -- or momentum that we saw in our business was related to our SaaS business and primarily driven by a refreshed product lineup.

And we're going to continue to see that momentum continue over the last -- or the next few quarters.

Relative to PCIe, we continue to be encouraged by that business.

We have as we indicated at the HGST press event in September, we will have some refreshed products come out that we believe will be more competitive on the PCIe front and that will begin to impact our financial results in the middle of next year.

And then right now on the SATA front we do not have a competitive offering in that space.

We're looking at it closely and there it is primarily an economic issue.

We clearly could address it from a technical capability and customer perspective, but we also want to do it in a way that generates the right kind of returns for ourselves and our shareholders.

Thanks for that Steve.

And then as a follow up, the enterprise flash is a big market, $4 billion, so obviously a lot of room for the team to grow from here.

And as you scale this business higher, do you feel comfortable in being able to cost effectively secure NAND flash supply?

Because it does look like supply is going to be fairly tight as we move through next year and potentially through 2016?

Yes, at present we do.

We continue to have a very strong relationship with Intel through our joint development arrangement.

We recently talked about how that development arrangement has been extended, I believe probably for -- I may have my number here wrong, but I think the third time that we've extended it since we originally entered into that arrangement back in 2008.

We also announced back in September again at the HGST press event that we have expanded our NAND relationship to include Toshiba as well.

So we are working with them on a strategic basis as well.

And we'll continue to evaluate the nature of our relationship from that regard but right now we feel very comfortable with where we're at.

Great.

Thanks, Steve.

Monika Garg, Pacific Crest Securities.

If we look at even your exabyte [skills] and even Seagate's, industry exabytes grew very strong in Q-over-Q.

If we see similar trends in the [describe] industry, do you think industry could see tight situation for the next three to four quarters?

And what will the (inaudible) if you would look at, if you would look to add any new capacity?

Sure, that's something that we continue to watch closely.

At present, we do not believe -- well, let me say it this way, we believe that we will have adequate supply from a component perspective to meet anticipated demand.

But you raise a very good point when you're talking about these high cap capacity enterprise drives particularly our seven-platter Helium-filled drive, we use a lot of components, 14 heads and 7 platters.

And so that is something that we're watching very closely.

But right now we do not anticipate that there will be a problem meeting customer demand and nor do we believe that there will be any meaningful need to add capacity that will materially impact our stated CapEx plans.

Reminding you that relative to CapEx, we have indicated that as of right now we're at about 4% of revenue.

We expect that that will continue at that level through the balance of this fiscal year.

Then I -- a question on the hybrid side.

Seagate had a (inaudible) hybrid client meaningly in the quarter.

Would you conceded the hybrid strategy at some point?

Well we have a hybrid strategy.

We continue to review it consistently.

We are seeing some encouraging signs in that business particularly in the client space.

We are not from our perspective seeing much interest for hybrid base drives in the enterprise space.

We see customers are interested in a disaggregated solution as opposed to an aggregated solution.

And we're going to continue to evaluate what we're doing from a hybrid perspective.

But both from a product perspective, from a performance perspective and from an economic perspective, we are a bit more muted with regards to our enthusiasm as it relates to hybrid offerings.

Got it, thank you so much.

Jayson Noland, Robert W. Baird.

I wanted to ask about joint technology partnerships, Seagate announced one recently with a Cloud service provider in China.

I recognize you guys probably have these but just haven't announced them formally.

How popular are these Steve and should we expect to see more of them going forward?

The answer is yes.

We should expect to see more partnership kind of activity.

I don't quite know how to dimension how popular they are.

But with the ecosystem changing so much and it changing in some cases in ways that are harder to predict.

There's a lot of evolving technologies.

You've seen us make some -- and these are small dollars within the whole grand scheme of things, make some investments in some storage technology related companies, enter into other kinds of partnership arrangements.

And so that kind of activity will undoubtedly increase.

As we look to expand our footprint, expand the way that we can add value and clearly many of these companies given where we sit within the storage world US as attracted partners to work with as well.

So I think that we will continue to see that kind of activity for expanding for ourselves and for others in the industry.

Okay, a follow up there on the financial model, as you head down that path, expanding your footprint in the systems business, should that drive gross margin up and investment on the OpEx line up over time?

We are not specifically indicating that from a model perspective.

We're going to continue to keep an eye on that.

We have been incrementally investing as well as de-investing in terms of OpEx and shifting things around.

But generally speaking our OpEx levels have stayed relatively consistent from a percentage of revenue perspective.

And then in terms of gross margin, the opportunities that we are looking at pursuing whether they be accretive on the gross margin line or accretive on the operating income line, that's clearly what we're trying to do is figure out how we can add more value from a customer perspective.

And if we do our jobs right that should translate to improved economics on our income statement as well.

Okay, thank you.

Mehdi Hosseini, SIG.

Steve, you talked about the digitized given the strengthening to the first half of calendar 2015, how about the traditional notebook and the consumer desktop, any comment there?

And to that extent if you could also discuss the pricing trend that you see beyond the December quarter.

Thank you.

Sure.

Relative to the PC market both in terms of notebook and desktop, and I'll address them together rather than individually.

We see the PC market as I would characterize it as stable.

We've seen in terms of IDC numbers that have been published or industry forecast that have been published with PC market declining in the low single digits.

We see that continuing.

We don't see either an acceleration or a deceleration from that perspective.

So I would characterize the PC market as stable which means that it's certainly much better than it has been.

And there's certainly no slowdown or it's not worsening and that's a good thing from our perspective.

Relative to either the March quarter or the first half of 2015, I would indicate that our visibility there is not as great as it is in the enterprise market.

And so at this point, we would simply expect that we would see the normal seasonal decline that we traditionally see for a December quarter going into March end of the first half of the year.

So that's the way we see it right now.

Great.

And then any color on the pricing trend?

Pricing has been within our expectations.

Nothing really notable to call out.

Got it.

Thank you.

Rob Cihra, Evercore.

One, my first question and my follow up on the enterprise SSD obviously nice growth there.

You had I think Steve you had reiterated the plan to be, or the goal to be accretive following this sTec and the Virident acquisitions early calendar 2015.

That would imply I would assume that business moving to become meaningfully more of a contributor to the business given the fact that the HGST Intel SaaS SST is still the bulk.

Is that the case or is that more of a cost cut gets you to the accretion?

What gets you to the accretion, I'm assuming it's --

Yes, Rob, so the primary dependency is ongoing revenue growth.

We are investing a certain sum of money from an OpEx perspective to make sure that we have the product -- the products out there from an industry perspective.

But the primary dependency is to that accretive statement is ongoing momentum from a customer acceptance and revenue perspective.

And we are comfortable that we're on the path that we need to be on to make the statement that we expect to be accretive in the first part of 2015.

Okay, great.

And if I could ask a quick follow up on the helium drives, are they enough contributor yet to actually make a meaningful impact on your ASPs on the blended ASP in enterprise?

I'm assuming so, but are they big enough yet to do that?

Thanks.

Really, I would paint it in the context that our capacity enterprise business was a meaningful contributor to our ASP lift in this past quarter.

I don't know if I want to call out the helium-filled drives specifically.

But it's beginning to make certainly a much more meaningful impact.

We're very pleased with where we're at with the adoption of our helium platform.

And not only that, very encouraged by customer reaction or anticipation to volume production of the 8 terabyte as well.

Great, thank you very much.

Mark Miller, Noble Financial Capital.

We talked earlier about a tightening in flash environment possibility and I'm wondering at what point does it become painful relative to competitors with internal flash supply if flash prices increase?

I'm not sure I follow your question Mark.

Well if flash prices go up, that's a percent of your build materials for your drive.

And I'm wondering what -- how sensitive are you in terms of flash price increases in terms of your margins or your ability to transfer that to your customers?

Yes, I'm not that concerned about that Mark at this point.

We've been on the enterprise SSD business for a while.

We've gone through some ups and downs from a pricing perspective.

We certainly have a history of dealing with that in terms of variability in terms of component costs on our base drive business historically.

It's something that we have to watch and keep our eye on, but I'm comfortable that we'll be able to deal with whatever variability exists from a component pricing perspective as it relates to flash.

And just wondering, it appears that you're projecting a flat overall drive TAM for next year, does that seem reasonable?

We haven't provided a specific forecast for next year's TAM.

What we have indicated is that we expect the TAM for rotating magnetic storage to increase at low-single digits level from a unit perspective.

And I apologize for this extra one, but a housekeeping question.

What was your forecast for SG&A and R&D for next quarter spending?

As we said, as I said in my remarks, about $600 million.

That's $600 million, so that's down significantly from this current quarter, is that correct?

Correct, for two reasons.

We had one additional week of OpEx last quarter, we had 14 week, and then the other one off incentive payment as well.

Okay, I was -- I missed the incentive payment.

Thank you.

Ben Reitzes, Barclays.

Steve I wanted to ask you a little more nuance around two things you already touched on.

In terms of the December quarter guidance with the loss of the extra week, your guidance looks pretty flat to up actually if I were to assume that it's probably impossible to know what the extra week gave you in the quarter.

But if you take something off, it looks pretty flattish and you were saying down, so I wanted to see what the extra week was in your guidance.

And then I had a quick follow up.

Yes, Ben, you're right.

It's a little bit difficult to calibrate exactly what the impact of the extra week was last quarter.

Also not to further confuse things, the December quarters always a little bit tricky in the sense that you have Christmas and how much activity actually takes place in the last week?

So you could argue that it's a 12-week quarter in a sense in terms of the December quarter.

The reality of things is that most of our business is -- or the lions share is OEM based and so it's not as transactional.

So I don't really think that the 14th week had a material impact for us.

We do believe it was probably slightly accretive if we were to guesstimate.

But talking about the December quarter, there'll be some moderation from an overall demand perspective but we think that the demand environment is on balance.

It pretty good, not great and certainly not bad.

But it continues to be generally relatively steady.

Okay, great.

And then I was hoping you could clarify one other thing that you said around 50% of your free cash flow going to shareholders and the other 50% going in reserve for potential opportunities.

I wondering if you could hone that comment around potential opportunities, did you mean more on the enterprise and flash side?

Or do you -- if there's a way to hone that, it's really hard to say what you're going to go out and buy and do.

But if you were to be specific, do you see it more in consumer or enterprise or however you want to specify it that would be great?

Thanks.

There are two principal opportunities that we think where we are positioned from a product and customer perspective to expand our footprint.

One clearly is in the enterprise space.

If you want to call that moving up the stack in a way that is complementary to what many of our -- what much of our customers are doing.

And also we do you think that we have incremental opportunity in the consumer or prosumer or small and medium business opportunity from a storage perspective as well.

So those would be the two principal areas that we would be focusing on.

Great, thanks so much.

So thank you again for joining us today.

In closing, I want to thank all of our employees and suppliers for their commitment and outstanding execution and our customers for their continued business.

Thank you.

This does conclude today's conference.

You may disconnect at this time.