You can build the CMOS separately from the NAND stack and then the CMOS is kind of pristine. So the interfaces are really, really fast. So there’s lots of good things about that architecture that leads to a really, really market-leading product, and we feel good about it. And we’ve got that all ready to go when the market the market conditions will support that level of investment.
Operator: Our next question comes from Mehdi Hosseini from Susquehanna. Please go ahead with your question.
Mehdi Hosseini: Yes. Most of the good questions have been asked. But David, I just have a longer-term question, and I think it will help many investors let’s say, prices were to go sideways in ’25, and you’re just focusing on that 15% cost down and higher mix of higher-value SSD products. Can you help us understand how your flash margins would evolve from here? And then I’m not trying to ask you for pricing. But I’m just wondering how we could gauge your execution first, on the product mix and be on the cost down and how they both would manifest into higher margins.
Wissam Jabre: Yes. Then let me first start with — I’ll take a stab at the answer, Mehdi. So look, our target model hasn’t changed. We’re still targeting through cycle for the flush business to be 35%, gross margin to be between 35% to 37%. And so that means, obviously, as — from where we are today, we still have some ways to go to get to that through cycle margin. And the way we achieve these gross margins is what we’ve been talking about on this call. We focus on the product portfolio, the bit placement as well as on the cost side, which we still anticipate a similar type of ranges in terms of cost downs.
Mehdi Hosseini: Okay. That’s reasonable. Let me just move on to the second question. And this is something I always ask, focusing on HDD. Is there any update how you see exabyte shipment evolving like over the next couple of years? Is the target now 25% to 30% or less or more?
David Goeckeler: We’re not — we’re still in the 20% to 25% camp, maybe around 25%. That’s — we’re clearly in a cyclical recovery here, getting back to that kind of through-cycle number. I think the kind of the question inside your question is how much does AI add on to that. And I think it’s still a little early to tell. We definitely see — as I talked about earlier, we see the value of data going up, you want to store more data to train more models. Those models are going to turn out more data. So we think that the bias is higher. I’m not in a position yet to call exactly how much it changes the slope of that line. So that’s something we’re going to stay very focused on as we go forward here over the next several quarters, stay close to our customers as these models get deployed and AI gets more broadly deployed and adopted so that we can dial in what we expect that impact to be on HDD storage demand.
But we feel good that it’s — and we’ve got that secular tailwind to the business that will emerge.
Operator: Our next question comes from Steven Fox from Fox Advisors. Please go ahead with your question.
Steven Fox: Hi. Two quick ones for me. First of all, on the HDD side, your large competitors talked about having to sort of support the supply chain going forward. I was wondering what — how you look at that option or need to do that? And then secondly, since cash flows turned positive again, I was wondering if you could sort of give us a little bit of help on how to think cash flow tracks maybe versus net income or EBITDA over the next few quarters? Thanks.
David Goeckeler: I’ll just say something about supply chain. Look, we stay — we’ve stayed very close to our suppliers throughout the entire downturn and stay very close to them as we’re planning the business going forward. So we think we always support our supply chain and Irwin Tan, who leads operations is based in Singapore, a lot of our suppliers are there, and he personally can stay very, very close to them. So we’ve stayed we’ve been very close and have supported our supply chain throughout this entire downturn. And now as things are getting better, that’s a good situation for all of us. You want to talk about the cash flow?
Wissam Jabre: Yes, let me take that. So on the cash flow, yes, thanks. Obviously, we returned to free cash flow positive in Q3. And as the revenue and the business continues to recover, we’re completely focused on profitability and cash flow generation. So we should expect that to improve from here.
Operator: Our next question comes from Ananda Baruah from Loop Capital. Please go ahead with your question.
Ananda Baruah: Yes, thanks guys for taking the question. Just one for me. David, really, I think, piggybacking off the part of Mehdi’s question. So just a TAM question on both sides of the business, HDD and Flash, is really the spirit of it that you see some near-term demand from AI coming and TBD on the impact to the TAM over time and also TBD on impact to the normalized growth rate off of whatever the new TAM looks like. And that’s really the question. And TBD is the financing, but I just wanted to make sure we get all of your current opinions there. Thanks.
David Goeckeler: I think that’s a fair way to say it. I think it’s coming into focus as to where it’s going to show up on both sides of the business, but it’s — to your point, we’re not ready to call what it does to the TAM, besides, we believe, it’s a tailwind to both TAMs. So clearly, on the NAND business, there’s very specific use cases on model training that are coming up substantially. I mean, obviously, you’re seeing that across the whole technology landscape. And maybe that’s a little bit easier to see we’re actually seeing demand for those kind of products in the second half. And for HDD, we see it as all the data that’s going to feed that process is going to sit on HDDs. And obviously, once those models get trained, they’re going to turn out data that’s 85% plus of that is going to be stored on HDD.
So we see a very, very good setup, but we’re staying close to our customers in these markets. It’s still a little bit early to actually put a number on it of what it does to the growth rate or the TAM size.
Operator: And our next question comes from Tristan Gerra from Baird. Please go ahead with your question.
Tristan Gerra: Hi, good afternoon. A quick follow-up on this, which is how critical is it to have U.S. manufacturing for SSDs in relation to AI? And how do you look at partnership with hyperscalers as opposed to more kind of a general purpose business.
David Goeckeler: You mean U.S. manufacturing of the NAND itself or the SSD, which — well, our NAND is manufactured in Japan. So we don’t see that as — we feel really good about our manufacturing footprint, by the way. So the JV, we haven’t talked at all on this call about the JV, but that puts us in a great position from a scale perspective and gives us — is the big underlying part of that low-cost lowest-cost bids, low capital efficiency and great product road map because we — all of that is done in tandem with Kioxia, and so we’re able to invest as the largest supplier in the market, which is a great position to be in. But we haven’t — the way our footprint is set up for a manufacturing point of view, we haven’t seen anything that impairs us ability to serve the entire market.
And as far as partnership with hyperscalers, like, look, we stay very close to the hyperscalers. Obviously, they’re big customers of ours. We’re big suppliers of theirs on both sides of the business. So we’re very, very close to them and staying close to what are different use cases, how do they want the products built especially in the enterprise SSD market, every — there’s not just one enterprise SSD. Everybody uses slightly different interfaces and there’s different ways, their architecture of their data centers are built. So we stay close to them to make sure we build the right product for what we’re — what the markets we want to serve.
Operator: And at this time, we’ll conclude today’s question-and-answer session. I’d like to turn the floor back over to David for any closing remarks.
David Goeckeler: All right. Thanks, everyone. We appreciate all of the questions, and we look forward to talking to everybody throughout the quarter. Thanks again.
Operator: This concludes today’s conference call. We thank you for joining. You may now disconnect your lines.
