Operator: Good afternoon, and thank you for standing by. Welcome to Western Digital's Third Quarter Financial Results for Fiscal Year 2013. Presently, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this call is being recorded.
Now I will turn the call over to Mr. Bob Blair. You may begin.
Bob Blair - WD IR: Thank you. I want to mention that we will be making forward-looking statements in our comments and in response to your questions concerning, growth in the storage industry and our position and opportunities in the industry; industry demand for the June quarter and calendar year 2013; all production levels and capital expenditures; customer response to our product offerings and our financial performance including our financial results expectations for the June 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-Q filed with the SEC on February 1, 2013. 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 during this call to the comparable GAAP financial measures are included in the quarterly fact sheet posted in the Investor Relations section of our website. The forward-looking guidance we provide during this call excludes certain items such as amortization of intangibles and other charges. 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 ask that analysts limit their comments to a single question and follow-up question following our commentary today. I also want to note that copies of remarks by our CEO and CFO from today's call will be available on the Investor section of Western Digital website immediately following the conclusion of our call.
I would now like to turn the call over to President and Chief Executive Officer, Steve Milligan.
Stephen D. Milligan - President and CEO: Good afternoon, and thank you for joining us. After my opening remarks, Wolfgang Nickl will provide additional commentary on our March quarter results and outlook for the June quarter.
I'm pleased with our financial performance in the March quarter. We continue to execute well and capitalize on the ongoing secular growth in digital data. Industry demand was in line with our expectations and we expect volumes in the June quarter to be flat to slightly down with the March quarter. We are cautiously optimistic about the potential for a modest seasonal uptick in demand for the second half of calendar 2013. Our production levels will continue to be adjusted to prevailing demand patterns.
In the March quarter, both the HGST and WD subsidiaries continued to deliver outstanding financial results, driving gross margin performance well within our model. We continue to effectively manage the diverse elements of our business with a keen focus on operational excellence and value creation for our customers, shareholders and employees. Customers continue to respond favorably to our breadth of product offerings and value based engagement model. It is important to note that we have established a leadership position in the fastest growing areas of the storage industry. These include our high capacity drives and solid state drives for the cloud, Branded Product solutions for the personal cloud and leading small form factor drives for thin and light mobile devices.
Given our strong pipeline of innovative new products, we have the opportunity to sustain this favorable momentum for the foreseeable future. Currently, we are seeing strong market response to several new products, including our new family of 5 millimeter, 2.5 inch hard drives and solid state hybrid drives for ultra-portable devices. Our 7-disk helium sealed drive platform aimed at delivering significant total cost of ownership benefits for hyper scale data centers and our expanding range of SSD offerings for the Enterprise space. We continue to be excited about the long-term outlook for storage and our increasingly strategic position within this vast digital data ecosystem. Western Digital is one of the best positioned technology companies to leverage the ongoing creation, transfer and storage of data, a trend linked directly to consumers' increasingly ubiquitous experience with data in all aspects of their lives.
We believe digital data growth will continue unabated for the foreseeable future with total exabytes shipped growing from 600 exabytes in 2012 to at least 5,900 exabytes by 2020 representing a 33% compounded annual growth rate. Consistent with other recent commentary we believe exabyte growth is a better and more relevant measure of the growth potential for the industry and our Company.
Western Digital is a market and customer driven Company, focused on growth and innovation. We develop deep and collaborative relationships with customers, an approach that is being manifested in our role as a trusted advisor and market maker. We believe this approach will continue to be one of the key factors in helping us to achieve strong business performance. The Western Digital platform is powerful with growth drivers and unique competitive advantages that will continue to provide us the opportunity to expand our value creation model within the storage ecosystem.
I'm confident that this approach will continue to result in strong and sustainable financial performance further differentiating Western Digital as one of the world's leading technology companies.
I will now turn the call over to Wolfgang.
Wolfgang U. Nickl - EVP and CFO: Thank you, Steve. I will first summarize the total market demand and our consolidated financial performance for the March quarter and then conclude with a range of our expected financial results for the June quarter. As Steve mentioned, we are very pleased with our March quarter performance as it demonstrates the resilience and strength of our business model. The HDD market shipped approximately 135 million units during the March quarter, flat to the December quarter and in line with our forecasted range in late January. In our business, we saw strength in Enterprise, stable quarter over quarter performance in client and consumer electronics, and anticipated seasonal softness in Branded Product.
Our Distribution and Retail channel inventory continues to be lean and our analysis suggests that inventory levels at our OEM customers are also in good shape. Our revenue for the quarter was $3.8 billion.
We shipped a total of 60.2 million hard drives at an average selling price of $61. We exceeded our revenue guidance due primarily to better-than-expected business and product mix and lower-than-expected like-for-like price declines.
The average capacity per drive we shipped in the March quarter was 810 GB a 35% year-over-year increase. This reflects strength in our Branded and Enterprise businesses as well as solid mix up in our client business to cope with the ever increasing amount of digital content.
Our gross margin for the quarter was 28.2%. Non-GAAP gross margin was 29.2%, excluding $38 million of amortization expense related to acquired HGST intangible assets. Non-GAAP gross margin was approximately120 basis points better than our guidance as a result of better than expected cost improvements and product mix and lower than anticipated price declines.
Our broad based participation in the secular growth of digital data is resulting in a more diversified mix of our revenue. Over the last five years the revenue contribution of our Non-PC related business has grown from 35% in fiscal year '08 and is projected to account for more than 50% of our revenue in fiscal year '13. As a reminder, our non-PC related businesses comprise of our Branded Products, consumer electronics and Enterprise business which includes SSDs.
R&D and SG&A spending totaled $581 million for the March quarter. SG&A included $22 million of amortization expense related to acquired HGST intangible assets and other unrelated charges. We incurred additional charges of $63 million from the March quarter, reflecting continued alignment of our operations with anticipated market demand. As a reminder, we've already incurred total charges of $147 million in the prior three quarters reflecting ongoing infrastructure alignment as well as an evolution of our organization to address growth opportunities.
Tax expense for the March quarter was $15 million, or 4% of pre-tax income. The rate reflects the retroactive extension of the federal R&D tax credit. Our net income for the March quarter totaled $391 million, $1.60 per share, on a non-GAAP basis, net income was $514 million or $2.10 per share.
Turning to the balance sheet, we generated $727 million in cash from operations during the March quarter and our free cash flow totaled $539 million. Our CapEx for the March quarter totaled $188 million. For the full fiscal year, we expect to be at the upper end of our CapEx model, including approximately $200 million for expenditures related to the floods in Thailand. Excluding the flood related spending we would be close to the bottom end of our model range, reflecting our measured approach to capital spending in today's environment. As part of our capital allocation strategy we have repurchased 5.2 million shares for $243 million during the March quarter. In addition we declared a dividend in the amount of $0.25 per share or a total of $60 million, which we paid on April 15th to shareholders of record as of March 29. We exited fiscal Q3 with total cash and cash equivalents of $4.1 billion, of which $1.5 billion was in the U.S.
I will now provide our guidance for the June quarter, which anticipates sustained strong performance within our business model during what is typically the industry's softest quarter. We expect; a flat to slightly down total available market when compared with the March quarter; revenue in the range of $3.55 billion to $3.65 billion, reflecting the current demand and pricing environment and the seasonal change in business mix; gross margin well within our model at approximately 28.5%, excluding the amortization of HGST intangibles; we expect R&D and SG&A spending to be approximately $550 million, excluding the amortization of HGST intangibles.
We expect tax rate within our 7% to 10% model and a share count of approximately 243 million. Accordingly, we estimate non-GAAP earnings per share of between $1.65 and $1.80 for the June quarter.
Operator, we're now ready to open the call for questions.
Operator: Sherri Scribner, Deutsche Bank.
Sherri Scribner - Deutsche Bank: (Indiscernible) how it impacts your business. I'm sure you've all seen that PC units were down substantially in the March quarter, but if we look at your PC business based on the desktop and the notebook, you were up a little bit. Now, I know that those businesses are not exactly correlated, but I think some people are concerned there are some inventory building somewhere in the channel that would describe that difference between what you're seeing and what the PC market is seeing. Can you give us some more detail why there would be a difference there?
Stephen D. Milligan - President and CEO: Sherri, this is Steve. One of the things I think that we have to continue to keep in mind, Wolfgang alluded to it in his prepared remarks is that; first thing is this, we're becoming less and less of a PC story and more of an overall digital data growth story. So, although we are still impacted by what's happening in the PC market, it's becoming less and less. That being said, yes, the PC market was down. It was only down a bit more than what we actually had forecasted. So our underlying assumptions did not expect there to be particular strength in the PC business. So we were not that surprised on the downside in terms of what happened there. The fact that our units are up, was really more a reflection of our ability to gain a bit of share from an execution standpoint and then lastly as Wolfgang indicated, we do not believe at present that there is any sort of an inventory issue in terms of the PC market that we're aware of.
Sherri Scribner - Deutsche Bank: Then for my follow-up, I just wanted to get a little more detail on the near lying market. How large do you think that market was. What do you think your share was in that market and what type of growth expectations do you have for that going forward?
Wolfgang U. Nickl - EVP and CFO: Yeah Sherri, that market grew healthy quarter-over-quarter. We believe it was up from 7.5 to like 8.5, 8.4, 8.5, like a solid increase quarter-over-quarter. Our share there is very solid. Our share is very well distributed across all of our businesses. Our average share I believe is 44.4 and I'd say all markets are plus/minus 2%, in that range and we said before that is one of the markets that we believe will show solid growth in the future and we previously said that we expect double-digit growth in those markets and that's volume and on top of that significantly more data growth in that market in particular.
Operator: Rich Kugele, Needham & Company.
Richard Kugele - Needham & Company: I just wanted to dive a little deeper into one of your comments on the gross margin side for some cost savings and I guess, unanticipated or accelerated cost savings, was any of that head related or the transition to new aerial density benefitting or if you can just elaborate a little bit more on those elements?
Stephen D. Milligan - President and CEO: Yeah Rich, the team's executed very well. We had extremely good linearity which helped us earn a bit more market share from the volume was slightly higher than we thought, that helps with the overall absorption. We are not done with the areal density transition but we made solid progress. Lastly I think we have worked with our suppliers and within now what we would call in a more normal area in terms of internal/external sourcing. So all of these things paired with solid execution in both of our (subs) helped us to have better cost than what we thought.
Operator: Aaron Rakers, Stifel Nicolaus.
Unidentified Analyst - Stifel Nicolaus & Company, Inc.: This is (indiscernible) for Aaron. I was wondering, if you could comment maybe on your days payable kind of increasing costs – of your CCC to increase the 12 days. I was wondering, if you could kind of give us an idea of how to model that going forward?
Wolfgang U. Nickl - EVP and CFO: Yes. I mean our cash conversion cycle target model is four to eight days. We are a tad over that. It's less a function of the days payable. We are like that in that range that we displayed. We have made very conscious investments in inventory. As you know we are restructuring quite a bit in various operations and when you do that you want to make sure that you have sufficient proper materials in place. We also make sure that we take advantage on the way we understand the demand signals very well of ocean shipments, that's quite a cost saving. Then lastly in particular our Enterprise customers we want to make sure that we have solid just in time warehouse inventory in front of them. So that they – that we don't disrupt their pools as they conduct their business. So, mid-term opportunity there I would see more on the inventory turns, but we watch the same very, very closely, but with a free cash flow of $539 million, we didn't make this one of our top priorities, but it's an opportunity going forward.
Unidentified Analyst - Stifel Nicolaus & Company, Inc.: Then for my follow-up, I was just wondering, if you could comment a little further on OpEx. It looks like it was up sequentially in the quarter, yet headcount was down. I was wondering, if – when we might, see an impact from the decrease in headcount going forward?
Wolfgang U. Nickl - EVP and CFO: First of all just bridging the $581 million to the $540 million that we had in our guidance, just a little, $540 million was a non-GAAP measure. So that's about just shy of $20 million on incremental growth on incentive plans, since we over achieved. There was a $10 million of so, standard amortization of intangibles as there are every quarter and then we had a legal settlement there as well. So normalized for incentive payouts, we're pretty much exactly right on with our guidance. In terms of looking forward, we have a reduction of headcount, that's mainly in the factories which you'll see in the COGS line. But we're also reducing headcount in the OpEx areas. But not to bring the overall OpEx down, it's to create room to invest in the growth areas. So we're investing in Enterprise, in new platforms and we're investing in SSD and other areas. So the target of the restructuring there is (less) to reduce the number for now from 550-ish kind of level. It's more to make room for the growth in strategic growth areas.
Operator: Ananda Baruah, Brean Capital.
Ananda Baruah - Brean Capital: I guess this is for either Steve or Wolfgang, why would gross margins be down in the June quarter off of March if pricing is – it sounds like you're saying pricing is a little bit better than you expected and it feels like just based on the margins you reported this quarter that mix is probably – at least as good as, if not better than you expected. Would just love to get your thoughts on the gross margin dynamics in June.
Wolfgang U. Nickl - EVP and CFO: I'll give you like the – some of the drivers. First of all, volume – the market is slightly down, so we anticipate that our volume will be down and that doesn't help with cost, but the main driver here is it's seasonally the softest quarter but it's also seasonally a quarter where we have an interesting channel mix dynamic going on, you're shipping more to OEM, you're shipping less to retail and in particular desktop distribution channel is down in this quarter. So, it's mainly a function of reduced volumes and business mix and then we've modeled some price decline for the quarter as well.
Ananda Baruah - Brean Capital: You guys mentioned, Steve mentioned in his prepared remarks I guess of good adoption of new products and I know you guys have the hybrid drives that are out, saw your 5 millimeter announcement, some new Enterprise products are coming out and you have the single product drives. Can you give us a sense, actually some drives into new game stations as we go through the year that I think are actually higher cap. Can you give us some sense of how we should expect the mix to manifest itself on the business as we move through the year? I know you are not going to give guidance on the gross margins but it seems like you have really nice mix up. So anyhow sort of on how we should think about all of those factors manifesting in results would be helpful as we go through the year?
Stephen D. Milligan - President and CEO: Yes. So I will comment on that. I mean we continue to expect our mix to improve. I mean it’s a little bit when I – I will talk a little bit about a longer-term view. There is always seasonal things that happen quarter-to-quarter but the mix trends are very favorable from our perspective and it comes back to the fact that digital data growth continues to be very substantial and people need to store that data somewhere. They need more storage as opposed to less storage and so we are going to continue to benefit from that. As we mix up that is – that provides better economics for us. So in the longer-term, if you want to refer to a secular trend, is favorable from that perspective.
Operator: Scott Craig, Bank of America Merrill Lynch.
Scott Craig - Bank of America Merrill Lynch: Two questions. First Wolfgang can you take us through the sort of free cash flow usage as you see it for the rest of the year? You talked a bit about CapEx but maybe where that's going to be spent outside of the $200 million on the Thai related issues and then as well as buyback and stuff like that. Then secondly maybe a question for Steve, can you discuss the investment in Skyera and just sort of your thought process behind that and maybe why not a PCIe guy why in flash, just sort of kind of take us through your thought process there?
Wolfgang U. Nickl - EVP and CFO: Yes. On the free cash flow it's really straightforward. I think we had three quarters well above 500. We expect another solid quarter and I think the linearity is going to be okay. We guided to a CapEx number that would let you conclude that we have somewhat lower than we spend in Q3 in CapEx. That CapEx now is mainly refocused on technology development, robustness of the supply chain and then as we mix up in flash capacity as well. In terms of what we do after the free cash flow, we stick to the 50% capital allocation strategy to shareholders as a percent of free cash flow. I think we have just a little bit shy of that and the intention would be to catch-up by the end of the fiscal year.
Stephen D. Milligan - President and CEO: In terms of Skyera, just to comment on that. Skyera is a small company based in San Jose that is privately-held, focused on SSD array technology. We have been involved with Skyera for a while, both in terms of an initial equity investor as well as we worked with them on a number of different technical areas. We had the opportunity to participate in their latest equity round and we're glad to do that. They have got a lot of interesting technology and not only from an equity perspective but also just from a technical collaboration perspective, very pleased to be working with them. In terms of your comment, why Skyera versus something else; I don't think that it's an either/or. We are very interested in the broader solid state memory area, particularly on in the Enterprise area. That includes things that we're doing in terms of our existing Enterprise SSD business, also in terms of what companies like Skyera are doing, and also in terms of PCIe, and so this just happens to be one equity investment that we were able to make in the past 90 days.
Operator: Keith Bachman, Bank of Montreal.
Keith Bachman - BMO Capital Markets: I was wondering if you could comment a little bit more about the TAM as you see it this year, after you specifically identified that the TAM in the June quarter will be flat to down a little bit. Could you talk a little bit about how we should be thinking about sequential growth or second half growth and any more specificity and more broadly just wanted to hear some thoughts on, if the PC market, most consensus I think are now down 6%, 7%, 8%, 9% in terms of units, but if the PC market is down 7%, 8% for the next couple of years, what do you think the TAM growth would be for the HDD business against that type of backdrop?
Wolfgang U. Nickl - EVP and CFO: I'll start it off Keith. So, our own assumptions, I think Steve said it in his remarks is a moderate seasonal uptick in the second half, and the emphasis on seasonal, I mean that's purely driven by back-to-school, holidays, and one of the product speakers talked about the gaming business, that's strong in the second half as well. So, you would want me to put a number around it, somewhere around 140-ish or so, so, I think that's an important planning assumption. In terms of the…
Keith Bachman - BMO Capital Markets: Sorry, 140 for the kind of the September quarter I assume you mean?
Wolfgang U. Nickl - EVP and CFO: Yeah, September and December. Then, I think Steve said it that, yes, IDC and Gartner have both stated I believe have both stated I believe 11% and 13% decline in the first quarter for the PC market. That was not too far off from what we had modeled in our assumptions. I think we wouldn't disagree with like an assumption of like 5% or so year-over-year decline of that market. IDC and Gartner forecast the market then to assume like modest growth. I think we would agree with that. We continue to believe that our market from a volume perspective is increasing from this year on by like 3% and this is really driven by capacity Enterprise and brand that and we quoted the number from our PC and our non-PC related business and we continue to see that trend to go to non-PC related businesses.
Keith Bachman - BMO Capital Markets: So philosophically if the market is down 5% to 7% on the sustained basis you think you can have positive unit growth even against that PC background?
Wolfgang U. Nickl - EVP and CFO: Yes.
Stephen D. Milligan - President and CEO: We go back Keith I mean I think that there is a couple of key points to emphasize. I mean, one, we are not anticipating a meaningful change in terms of what's happening in the PC market. We are not counting on that. We are being very cautious with regards to our production plans in that regard. The other thing is that, we talked about at our investor day was a longer-term unit growth rate in terms of HDDs of 3%, that continues to be our current assumption but that growth is not coming from PCs. It's coming from other areas.
Operator: Amit Daryanani, RBC Capital Markets.
Amit Daryanani - RBC Capital Markets: Two questions for me. One, you guys are guiding for a flattish TAM in the June quarter, in fact down. But I think your sales got – in fact sales have been down to somewhere in the 4.5% range. Could you maybe talk about how much of that is pricing driven versus potentially you give up some of the share gains you had in the March quarter, as you go through June?
Wolfgang U. Nickl - EVP and CFO: The first impact is usually from a segment mix like for instance the pricing in our Branded Products is significantly higher than if we ship into a gaming solution for instance. So, that's a big driver. If you for like-for-like pricing, we have modeled modest declines there and share is not really something that we planned for. That's more like an outcome. We plan to have really good product and deliver it in a very linear fashion to the market and the share is what the share is.
Amit Daryanani - RBC Capital Markets: Then if I look at just the Enterprise side, it actually looks like you guys picked up a decent amount of share in the March quarter. When you think about it, do you think that was more a reflection of just the right customers you were partnered with or some of the newer technology that you're talking of that is starting to take more adoption and that potentially has been accelerated I would imagine, as you get through the year?
Stephen D. Milligan - President and CEO: I don't know if I would draw any significant conclusions one way or the other in terms of the share. We did pick up a little bit of share in Enterprise. Now, if you go back, we had lots of little bit of share. So there are share gains and losses that occur quarter-to-quarter occasionally within rough moderate ranges. So I don't think that I would point to anything significantly per se, other than the fact that longer term thing we continue to provide compelling products to our customers and we engage with them in a way that they want to buy more of our product.
Operator: Cindy Shaw, Discern.
Cindy Shaw - Discern: A couple of questions for you. One, there's been a lot of hopes within some in the industry about a pickup in the second half due to things like the Windows XP End of Life April next year, ultrabooks for some folks and some saying, better supply of touch screen panels for Windows 8 notebooks would pick that up as we head into late this calendar year and I'm wondering is that in your guidance or would that be providing upside?
Stephen D. Milligan - President and CEO: Right now, we as well as many of our customers in the PC space are being very cautious with regards to the demand expectations. We'd certainly like to see and hope to see some of the dynamics that you're talking about to increase demand in the back half of the year. Right now, we are being pretty cautious in terms of our outlook from our standpoint, as we talked about earlier.
Cindy Shaw - Discern: So, it sounds like if that really transpires, it would be an opportunity for upside for you, is that right?
Stephen D. Milligan - President and CEO: That's possible.
Cindy Shaw - Discern: Then my follow-up question with your 5 millimeter drives, it seems like you're getting a bit of a head start on the competition and I'm wondering if that's really the case and also I'm hearing that the connector for your drive is different than the industry standard and would not be a drop in replacement for other 5 millimeter drives and I'm wondering if that's true and if so what the philosophy behind that is.
Stephen D. Milligan - President and CEO: We're working very closely with a number of different customers to look for them to adopt our 5 millimeter drive. We've been pretty pleased, both in terms of the standard rotating magnetic drive as well as the hybrid drive to get some adoption of that product as we move through the back half of the year and so we're very encouraged with where we're at. In terms of the adaptor, you're right, it is not a traditional industry standard adaptor. We did that to provide for enhanced shock characteristics in terms of the mobility for that drive and we're we are getting positive response from our customers so far.
Operator: Scott Schmitz, Morgan Stanley.
Scott Schmitz - Morgan Stanley: I am just wondering if we can go back and if you can update us on your cost structure a little bit more and more specifically what percentage is your variable cost? Then as it relates to that, if we look at utilization, I know it's difficult to kind of paint with a broad brush, but what components of the lowest utilization and conversely what ones are the highest?
Wolfgang U. Nickl - EVP and CFO: We haven’t really given out the exact split between fixed and variable cost. I mean you can look at our – if you take our non-GAAP depreciation and amortization like $260 million a quarter you can assume that that is probably around half of our fixed costs. I mean the rest is factory, engineering and utilities and maintenance and stuff like that. So I think we have an industry leading cost structure in terms of what part is variable. Then in terms of capacity utilization that remains an opportunity. In certain parts of our business I think you have characterized it well. You (can't) speak about capacity utilization in general. There are certain aspects of our infrastructure that are very tight, like I mentioned that we are investing in test capacity and there are certain aspects that were not hit by the floods and they are a little bit long right now, I wouldn't want to go into the exact detail where that is. But we are balancing that every quarter.
Operator: Maynard Um, Wells Fargo.
Maynard Um - Wells Fargo: Can you just help us think about the PC mix and ASP you're embedding going forward? I'm curious, because on the one hand you have the PC OEMs that are under greater margin pressure and pressure to reduce pricing to drive some unit volume. So, do you think that drives lower capacity drives into the market? It doesn't look like that's the trend you're seeing or do you think there's an offset here from higher hybrid drive shipments? Can you just talk about the industry dynamics and how to think about that impact to you?
Stephen D. Milligan - President and CEO: OEM customers are PC customers. The primary issue that exists is that they got to get compelling products out there at a cost point that compels consumers to purchase them. Sure, of course they're cost sensitive, but I think the bigger issue is the product's got to be right. So, if you look at what we're doing in terms of the 5 millimeter product, what we're trying to do is provide a thin and light storage device that our customers can design around that provides a more compelling product for them. It's not going to make a big difference for them if they save $1 or $2 on how much they pay for the memory.
Maynard Um - Wells Fargo: Then just as a follow-up, with the PC market pretty much kind of where you expected it, can you just talk about how far along you are on the actions to reset capacity, where you're comfortable and maybe just give us some other quantitative or qualitative idea of where you are?
Wolfgang U. Nickl - EVP and CFO: You've seen us with a couple of quarters of restructuring activity and you see our gross margin well within our model, so we're thinking very, very active and that little bit of something that we have to wait and see. We said that we expect a bit of an uptick in the second half of the year. So we'll just watch that very, very carefully and we've proven historically that we can react in either direction in terms of capital deployment.
Operator: Monika Garg, Pacific Crest Securities.
Monika Garg - Pacific Crest: I think Keith talked about kind of impact of PCs on your TAM. I want to touch base on the impact from pure client SSDs on the TAM too, so if you look at third party data or what OEM's are saying, they think 2013, we can see at least 20 million pure client SSDs. So, could you maybe talk about, first of all do you think it's possible something like that kind of volume and secondly how that could impact the business?
Stephen D. Milligan - President and CEO: So, what's interesting in terms of what we've seen is that the issue in terms of hard drive TAM, right because it's obviously down. It's down from 170 million pre-flood to 135 million this past quarter. Clearly, we've been impacted in that regard by lower PC sales, but it's not because of SSD replacements within PCs. In fact, we've actually seen that pure SSD as an alternative for hard drives has not changed significantly from what we expected or from what we've seen historically. Now, you are seeing dual drive configurations where you've got SSD in a hard drive, but we're agnostic to that. That's okay from our perspective. The issue is that there are competing devices, for example, tablets that are more compelling to customers that they're buying instead of PCs. So, if you go back to the 5 millimeter story or the hybrid story, what we're trying to do as a Company is provide a more compelling storage alternative in a thin and light package that our customers can work around, design more compelling products to have them buy a PC or a PC-like ultraportable device and versus a tablet.
Monika Garg - Pacific Crest: Then just one last one here regarding Skyera. Skyera makes its own SSDs, so it possible you might look at kind of selling the SSDs not just the systems made by Skyera?
Stephen D. Milligan - President and CEO: They are an SSD array company primarily.
Operator: Mark Miller, Noble Financial Capital Markets.
Mark Miller - Noble Financial Capital Markets: Just wondered, if you could estimate right now the percent of data being stored on a cloud that's gone on hard drives and where you think that might be in three years?
Stephen D. Milligan - President and CEO: Mark, when we look at it in terms of data storage we believe that – I can't remember off the top of my head frankly what the time frame was but that moving on in the future I think it was either 2017 or 2020, that 85% of data will continue to be stored on rotating magnetic storage.
Mark Miller - Noble Financial Capital Markets: Then also comment on the margin differential between the drives used in cloud storage and a typical (indiscernible) drive in a PC?
Stephen D. Milligan - President and CEO: I mean the drives that go into the cloud are of the highest quality, highest engineered products and they command the margin premium, so they are significantly higher than the margins in the PC space.
Mark Miller - Noble Financial Capital Markets: Then I would be wrong to ballpark that between 75% and 100% on higher on average?
Stephen D. Milligan - President and CEO: You are not going to question your question are you?
Wolfgang U. Nickl - EVP and CFO: (indiscernible).
Stephen D. Milligan - President and CEO: You are not going to back off. Wolfgang is not going to answer either.
Operator: Rob Cihra, Evercore Partners.
Rob Cihra - Evercore Partners: Two questions if I could; one, just wondering where you are in progress on a 500-gig (to be applied on) notebook and 1-terabyte on desktop. I'm assuming you won't say anything in terms of percentage of your mix or anything, but maybe just relative to your roadmap in terms of rolling out those capacity points this year. Then my second question, just going back to Enterprise, you had mentioned there's good organic growth in nearline demand or capacity optimized. Just wondering if whether in the nearline or the mission-critical these days – do you think there's any lingering recovery still from the September quarter inventory correction if that's helping at all or if that's kind of long done and what we're seeing now is true demand.
Wolfgang U. Nickl - EVP and CFO: On the areal density we're less than 50% on the latest and greatest. So that's – we are (indiscernible) for an opportunity over the next couple of quarters for us. Then what was your question on nearline was?
Rob Cihra - Evercore Partners: Just how much – whether nearline and also on that sort of a traditional Enterprise, if any of the sort of sequential growth you saw in the quarter or that you're seeing now, still has anything to do with, you're still recovering from September quarter, last year's inventory correction, or if you think that's long passed and what you're seeing now is just true end demand?
Stephen D. Milligan - President and CEO: We don't believe there's any inventory issue in that area of the market and it represents true unit demand.
Rob Cihra - Evercore Partners: Thanks very much.
Stephen D. Milligan - President and CEO: I want to thank you again for joining us. In closing, I also want to thank all Western Digital employees for their dedication and outstanding performance and our customers and their suppliers for their support. We look forward to being in touch with you. Thank you very much.
Operator: That concludes the call for today, you may disconnect at this time.