A：The key trends and demands related to AI include its expansion across industries, reshaping of business models, ushering in a new wave of digital transformation marked by higher productivity and richer user experiences, and a robust ongoing demand for data infrastructure to support the growth fueled by AI.

A：Western Digital is playing a vital role in the AI-driven economy by providing reliable, scalable, and cost-effective data storage solutions. The company's hard disk drives (HDDs) are crucial in storing the increasing zettabytes of data created by the AI-driven economy.

A：AI is transforming various industries by being a prolific creator and consumer of data, reshaping data generation, scale, and magnetization. An example given is one of the world's leading medical institutions using an AI workflow that analyzes over 7 billion images from 14 million patient records to improve diagnostics and patient outcomes, generating massive volumes of new data stored at Western Digital.

A：AI is being utilized internally by Western Digital to modernize firmware, deliver new features to customers more quickly and cost-effectively, improve yield, detect defect patterns through intelligent diagnostics, optimize test processes, uplevel technician capabilities, streamline workflows, and make the organization more efficient.

A：Western Digital is making advancements such as growing shipments of EPM R products with up to 26 TB CMR and 32 TB ultra SMR capacities, investing in head, wafer, and media technology, increasing manufacturing throughput with AI tools, and inaugurating a state-of-the-art facility for product integration and testing. They are also on track to start Hammer qualification for a hyperscale customer in the first half of 2026 and plan to expand the qualification process to up to 3 hyperscale customers through 2026. Next generation EPM R drives are set for qualification in the first quarter of 2026.

A：Western Digital has received purchase orders from its top customers extending throughout the first half of calendar year 2026, with five of them covering all of 2026. One of the largest hyperscale customers has even signed an agreement for 2027. These commitments indicate customers' strong confidence in Western Digital's product road map, including the transition to Hammer technology.

A：Besides AI and data storage, Western Digital is investing in its platforms business, which benefits from the growth of on-prem and cloud storage, including AI and social media applications. The company continues to invest in this business as opportunities arise and plans to scale up accordingly.

A：Western Digital plans to expand its proven EPMR roadmap, bring new technologies like Hammer to the market, and focus on improving data throughput, speed, bandwidth of drives, and power efficiency. Major progress is being made on these fronts, and the company will keep stakeholders updated on any new developments.

A：Following its first quarter performance, Western Digital has significantly increased its share repurchases and announced a 25% increase in its dividend per share to 12.5 cents per share. Chris will provide further details on capital allocation later in the discussion.

A：For the fiscal second quarter of 2026, it is expected that revenue growth will continue to be driven by data center demand and profitability will be improved by the adoption of higher capacity drives.

A：The improved gross margin in the fiscal first quarter was attributed to a continued shift in product mix towards higher capacity drives and tight cost control across manufacturing sites and the supply chain.

A：In the fiscal first quarter of 2026, Western Digital's revenue was $2.8 billion, up 27% year over year, with earnings per share at $1.78, both figures being above the high end of the guidance range.

A：Operating expenses in the fiscal first quarter were $381 million, slightly exceeding guidance due to higher variable compensation on stronger-than-expected results. Interest and other expenses were $44 million, the effective tax rate was 17%, and diluted earnings per share was $1.78. The company also returned $785 million to shareholders through share repurchases and dividend payments.

A：The outlook for the second quarter of fiscal 2026 includes revenue of $2.9 billion plus or minus $100 million at the midpoint, representing a year-over-year growth of approximately 20%. Gross margin is expected between 44% and 45%, with operating expenses projected to decrease to a range of $365 million to $375 million. Interest and other expenses are anticipated to be approximately $50 million, the tax rate around 17%, and diluted earnings per share expected to be $1.88 plus or minus $0.15.

A：Western Digital plans to meet rising customer demand by focusing on the continued delivery of higher capacity drives. A good example is the PMR product, which shipped over 2.2 million units in the last quarter, equating to approximately 70 exabytes. The company also plans to utilize its unique innovation around Ultra SMR technology, with a balance between CMR and Ultra SMR capacity. Additionally, the upcoming launch of the next generation EPM R Drive, which starts qualification in Q2 of calendar 2026 and is expected to go into ramp in the second half of calendar 2026, will further aid in providing higher capacity drives to customers.

A：The average capacity for the company's top personal care customers has increased 21% year over year.

A：The projected improvement in gross margins for the upcoming quarter (Q2 fiscal 26) is a range of 44% to 45%, which at the midpoint gives an improvement of approximately 65% on a sequential basis compared to Q1.

A：The qualification process of the next generation E PMR product has been pulled in to the first quarter of calendar 2026, which is six months ahead of the previously announced timeline.

A：The company is focusing on ensuring that the product has the right reliability and yields that are similar in capacity and capability to their existing EPM portfolio, which meets customer expectations.

A：The business has structurally changed with a focus on the data center, removing traditional seasonality. However, there is a small channel business that may exhibit some seasonality, but overall, the company does not anticipate significant seasonality moving forward.

A：The company's base case is for 15% growth, with an AI uplift case of 23%. They are seeing an exabyte growth trend more towards the 23% range, especially in longer-term agreements. On the cost side, a mid to high single-digit cost down is considered a safer estimate.

A：For the remainder of 2026, the supply demand balance will continue to be very supply constrained. With the ramp up of new capabilities, it is expected that more exabytes will come on stream in the second half of 2026.

A：Typically, it takes from start of qualification to completion of a product in the range of 200 to 300 quarters. Hammer's timeline for qualification to ramp in the first half of 2027 is on track with this expectation.

A：The projected timeline for Hammer's qualification is in the second half of 2026, with ramp expected in the first half of 2027. The focus is on ensuring product reliability for customers, avoiding production level challenges.

A：AI initiatives are expected to yield productivity gains of about 10% in manufacturing operations and around 20% in rewriting firmware. The company anticipates maintaining Opex in the 373 to 375 million range as revenues grow.

A：The 2.2 million EPDM drives shipped in the quarter equaled roughly 70 exabytes. The company plans to ship over 3 million units with a similar customer profile, indicating a consistent mix without significant changes.

A：The price increase was communicated through a letter to channel customers, affecting the client and consumer portfolio and lower end of nearline capacity drives. Long-term agreements with hyperscale customers were not affected.

A：The intention is to monetize the remaining 7.5 million shares in Sandisk before February 21, 2026. A previous monetization was done via debt for equity, and a similar transaction might occur.

A：The long-term agreements are not long-term agreements (LTAs), but firm purchase orders (POs) with significant commercial teeth. For one large hyperscale customer, the agreement covers the entire year with commercial terms that protect against forecast adjustments.

A：There is a nuanced view on AI spend. While traditionally a small portion of CapEx, the percentage of CapEx on hard drives (HDDs) has been trending towards the single digits to around the 5% range, indicating a more significant role for HDDs in AI spend.

A：The projected demand for AI infrastructure is trending towards a 23% growth rate, which is higher than the previous mid-teens growth rate projection. The company is working with customers to ensure they can support this growth through density improvements.

A：The forecasted mix of SMR into 2026 is an increase as existing customers expand their ultra SMR footprint and new customers are undergoing qualification processes. This is significant because it contributes to the overall growth of the portfolio and reflects a strategic shift towards higher capacity drives.

A：The revenue and gross margin upside in the recent quarter were driven by strong execution on the supply side, which included improved yields and throughput. On the gross margin side, the factors included a favorable pricing environment and the shift to higher capacity drives, leading to a more robust gross margin profile.

A：The company has been successful in executing cost reductions through moving to higher capacity drives, productivity yield improvements, test time reductions, and operational efficiencies. These ongoing efforts are expected to continue delivering mid to high single digits cost per terabyte reductions.

A：The strong free cash flow margin is attributed to great execution across operations, linearity in billings, and effective management of working capital. While achieving the same significant reduction in working capital each quarter is challenging, the goal is to maintain the current level without expecting the same incremental benefits seen in Q1 of fiscal 26.

A：The dynamic is a win-win situation where both the customer and the company benefit from higher capacity drives. The customers' need for higher capacity drives to meet exabyte demand also aligns with the company's growth trajectory in cloud and AI, prompting both parties to work closely on product development.

A：The company balances this risk by recognizing that while AI is generating more data, the demand for both SSDs and HDDs is increasing. The specific use cases drive the choice between technologies, and the fundamental architecture of data centers is not expected to change, keeping HDDs roughly at 80% of the bits stored. The company does not anticipate a major shift away from this balance.

A：Yes, Western Digital has fully mitigated the risks associated with the purchase of NVA. The company's P-Hammer development is being done on a separate system called NELVA provided by Canon, ensuring the risks are managed effectively.