David Goeckeler
Chief Executive Officer at Western Digital
Thank you, Peter. Good afternoon, everyone, and thanks for joining the call to discuss our second quarter of fiscal 2022 results. We delivered strong results for the fiscal second quarter, with revenue of $4.8 billion and non-GAAP gross margin of 33.6%, both of which are within the guidance range we provided last quarter.
Additionally, we reported non-GAAP earnings per share of $2.30, which was ahead of our expectations. I'm proud of the team, as this marks the seventh consecutive quarter of meeting or exceeding guidance amid a continuously increasingly challenged supply chain.
Before I go over the detailed results and business trends, I want to offer some important key takeaways coming out of calendar year 2021. First, we have made significant progress in strengthening our product portfolio.
We delivered on our goals of qualifying our enterprise SSD products at three cloud titans and two OEMs, commercializing energy-assisted hard drives, as well as commencing shipments of 20-terabyte hard drives based on OptiNAND technologies. These products address the large and fast-growing opportunities within the cloud for storage.
Second, demand for Western Digital storage solutions across cloud, client and consumer end markets remains consistently strong. We are optimistic about our outlook for calendar year 2022, as our customers continue to indicate solid demand across the end markets we serve. I'll share more about that demand and other macro factors later.
Third, we are continuing to navigate an increasingly complex supply chain, which is impacting both our customers' ability to ship products, as well as our ability to build products. In order to meet our end customers' demand, we are incurring additional costs that will weigh primarily on our hard drive gross margins through the first half of calendar year 2022. These issues are transitory in nature, affecting both revenue and gross margin, and we expect them to subside as the supply chain normalizes. We remain confident that the long-term growth and profitability opportunity in front of us has not changed.
Lastly, we received an investment grade corporate rating from Fitch in December, which represents Western Digital's second investment grade corporate rating. This marks an important milestone as we have worked hard over the last 18 months to strengthen our financial position, providing us with greater financial flexibility in the future. As we approach our targeted debt levels, we look forward to reengaging in a capital return program in fiscal year 2023.
Turning to our results. This past quarter, demand remained strong across our end markets, and our customers and the Western Digital teams continue to work diligently to mitigate the impact of supply chain disruptions. In particular, cloud revenue for the fiscal second quarter increased by 89% from the same period last year. We continue to anticipate strength in storage demand, which is bolstered by our ability to continue to bring innovative new products to market to meet the needs of the digital economy. The potential of what can be accomplished through the creation of content and the ability to access digital information easily has never been greater. With our technology, we are enabling businesses, creators and innovators to think bigger and push their limits even further.
Western Digital has built a great position in the large and growing storage markets. Our proven ability to innovate and develop a balanced portfolio, coupled with our broad routes to market, puts Western Digital in a strong position to capitalize on the many growth opportunities ahead of us.
I'll now recap our HDD and Flash businesses. In HDD, overall cloud end-market product demand remained high with revenue increasing 50% year-over-year led by capacity enterprise hard drives. Although we were up strongly year-over-year, capacity enterprise hard drives declined sequentially after two quarters of strong shipments, partly due to some of our customers' supply chain challenges.
As both Western Digital and our customers continue to face supply chain challenges, we will experience some near-term visibility issues. However, our overall demand signals continue to be very good as we move through the calendar year, and we will be in a stronger position once these headwinds subside.
During the fiscal second quarter, we commenced volume shipments of our 20-terabyte CMR hard drives based on OptiNAND technologies. We are very excited about OptiNAND, a revolutionary technology that utilizes flash in the control plane to further increase areal density. Additionally, we are seeing an increase in customer interest in adopting SMR technology and expect multiple cloud titans to deploy SMR drives in high volume later in this calendar year.
In flash, revenue grew in the second fiscal quarter due to seasonal strength in mobile and consumer. Within mobile, shipments of our BiCS5 products into leading 5G smartphones increased over 60% sequentially and 50% year-over-year, led by strong content growth. BiCS5 shipments represented over 40% of total revenue, and BiCS5 production crossover took place during the quarter as expected. The successful ramp of BiCS5 helped accelerate our overall year-over-year bit shipment growth to 37% in the quarter.
Our WD_BLACK premium SSD product line optimized for the best gaming experience continues to gain momentum, with revenue increasing about 50% sequentially and doubling in calendar year 2021. Along with flash products for gaming consoles, revenue has grown from zero to over 10% of our flash portfolio over the last two years. As consumers demand more ways to access, generate and store content, whether via gaming or the now emerging metaverse, our strong and growing flash portfolio will be integral to enable all of these applications.
In line with the guidance we provided last quarter, our client SSD business declined sequentially due to supply chain disruptions at some of our PC customers and pricing pressure in the more transactional markets. So far, within the current quarter, we are starting to see pricing in the more transactional markets stabilize.
As I mentioned earlier, our enterprise SSD products are qualified at three cloud titans and two major storage OEMs, marking significant progress compared to one cloud titan a year ago. As you know, this has been one of my top priorities. Building upon the early success of ramping BiCS5 into mobile and gaming consoles, we are further strengthening our product portfolio as we move through calendar year 2022. In client SSD, the bedrock of Western Digital's flash portfolio, we have launched and are ramping BiCS5-based products in the fiscal third quarter, with BiCS5 enterprise SSD products later in the year.
For our next-generation 3D flash, we began initial commercial shipment of consumer flash devices based on our 162-layer BiCS6. Furthermore, we qualified and commenced revenue shipment of client SSDs based on QLC and BiCS5 technology in the fiscal second quarter. While still early in its evolution, we are starting to pave the way for the industry's adoption of QLC in the future, and our next-generation BiCS6 node will play an important role in that evolution.
Let me now offer a few observations on the demand environment. The accelerated digital transformation in the last two years has created a world that is more technology-enabled and technology-dependent than ever before. We anticipate these trends will continue to drive data storage growth across each end market we serve: cloud, client and consumer.
Our customers remain optimistic about demand trends in calendar 2022, driven by capital investment for the cloud build-out, continued recovery in enterprise spending, growth in smart video applications, increased adoption in 5G phones, consumer gaming and emerging trends such as VR/AR devices.
In cloud, our customers have announced a 36% year-over-year increase in capital investment for the cloud build-out. This, coupled with an increase in enterprise spending and continued growth in smart video applications, is expected to drive growth for our flash and HDD products into this growing end market.
In client, PC and demand has remained strong. Our customers are driving more consistent demand than the past several quarters, and we see continued stabilization in 2022. PC unit shipment forecasts continue to be robust and significantly ahead of pre-pandemic levels. In addition, we anticipate an eventual return to site to drive a mix shift towards commercial PCs, which tend to offer richer client SSD content versus consumer-oriented PCs.
In mobile, the latest 5G phones have doubled NAND content from prior-generation smartphones. We expect mobile device content to benefit as ongoing 5G adoption and new 5G-enabled applications are expected to drive the storage demand in both endpoints in the cloud.
In Consumer, the highlight of this end market is our WD_BLACK SSD line of products optimized for gaming enthusiasts. Revenue more than doubled in calendar year 2021. The consumer recognition of the strength and value of WD_BLACK, along with the SanDisk and SanDisk Professional brands, drove a 34% year-over-year growth in average capacity per unit in consumer flash.
While end customer demand in calendar 2022 looks promising, supply chain challenges are increasing. This both limits our ability to source components to meet customer demand and increases component costs. These costs are on top of the ongoing elevated logistics and health and safety COVID costs.
While we believe these incremental costs are transitory and will subside as the supply chain conditions normalize, they will impact our results through the first half of this calendar year.
Let me now turn the call over to Bob, who will discuss our fiscal second quarter results and provide a more detailed outlook for calendar year 2022. Bob?