Good afternoon and thank you for standing by. Welcome to Western Digital's second quarter financial results for fiscal year 2008. (Operator Instructions) Now I will turn the call over to Mr. Bob Blair. You may begin.

Thank you. As we begin, I would like to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning: supply and demand conditions in the hard drive industry; growth opportunities and WD’s strategies to address these opportunities; the planned volume ramp of our 250-gigabit per square inch technology; beliefs regarding our future capital expenditures as a vertically integrated hard drive manufacturer; our growth and pricing expectations; expectations regarding our bridge financing facility and future longer-term financing; and our current financial outlook for the March 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 November 6, 2007, as well as the additional risk factors reported in the press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC today. We undertake no obligation to update our forward-looking statements to reflect new information or events, and you should not assume later in the quarter that the comments we make today are still valid. I will now turn the call over to Western Digital President and CEO, John Coyne.

Thanks, Bob. Good afternoon, everyone. After my remarks, Tim Leyden will review our December quarter performance in detail and address our outlook for the March quarter. A year ago I spoke to you for the first time as CEO and outlined my commitment to continue the pursuit of profitable growth. I am happy to report that our December quarter results complete a calendar year of tremendous achievement by the WD team, a year in which we delivered industry-leading growth and financial performance, and during which we significantly strengthened our technology position and the fundamental WD business model. In calendar 2007, we increased revenues by 38% and earnings per share by 56% compared with calendar 2006. More importantly, we have built momentum throughout the year and we exit the December quarter with revenue up 54% and earnings per share up 137% compared to the same quarter last year. Additionally, we maintained the financial asset management discipline which is a hallmark of WD, applying our expertise to the newly acquired WD media operation cycle times, and inventories, while also continuing to improve in head and drive operations, resulting in a sequential increase in inventory turns from 12.6 to 14.8. Hard drive finished goods inventory at the end of December was down 2% year-over-year, while we still achieved 54% revenue growth with consistent and responsive customer support. Capital spending at $332 million year to date is also disciplined and tracking in line with the previously announced reduction to our annual capital plan. I want to take this opportunity to acknowledge the outstanding contribution of the entire WD team, the tremendous support of our supply partners, and the increasing preference of our customers for WD’s value proposition. Our high quality, high reliability products, our flexible and responsive service, our efficient large-scale operations, our investments…

Thanks, John. We are very pleased with the results for our December quarter. They reflect crisp and timely execution by the WD team, strong demand for hard drives, and a rational competitive pricing environment. Our operational flexibility enabled us to quickly react to a number of attractive market and product mix opportunities throughout the quarter. These opportunities continued to arise after our revised guidance in early December, resulting in additional upside. Coupled with continued progress on the integration of our media operations and our ongoing focus on asset efficiency and cash management, these factors led to exceptionally strong revenue, earnings and cash flows in the December quarter. Revenue for our second fiscal quarter was $2.2 billion. This includes $120 million from external sales of media and substrates. Hard drive revenue was up 46% from the prior year, and hard drive shipments totaled 34.2 million units, up 40% from the prior year. Average hard drive selling prices were approximately $61 per unit, up $2 from the September quarter and up $3 from the year-ago quarter as a result of firmer pricing, due to the strong demand for hard drives coupled with an improved segment and product mix. The percentage of our hard drive revenue coming from non-desktop PC applications increased to 54% in the December quarter, as compared to 53% in the September quarter and 42% for the year-ago quarter. We shipped 8.7 million 2.5-inch mobile drives in the December quarter, as compared to 5.9 million in the September quarter and 2.7 million in the year-ago quarter. Demand for mobile storage continues to increase and our quality, technology leadership, product offerings, operational flexibility, and responsiveness have solidified our position as a valued partner to PC manufacturers, major distributors and retailers. In consumer electronics, we shipped 4.1 million 3.5-inch drives for use…

(Operator Instructions) Mark Miller. Mark Miller - Brean Murray, Carret & Co.: Congratulations on a wonderful job done. It’s very impressive to me. I just wanted to talk a little more about Komag, and you say there’s still more room for margin improvement as we go through to the end of the year. What are you estimate that Komag being accretive this quarter added to your margins? Was it around 75, 100 basis points?

About 80 basis points. Mark Miller - Brean Murray, Carret & Co.: Okay. Second question; was there any change -- did you do more heads internally this quarter or was that flat roughly quarter to quarter in terms of percentage of total heads you did internally versus externally?

I think roughly on a percentage basis, roughly flat from the prior quarter. Mark Miller - Brean Murray, Carret & Co.: Okay. Could you just break down the inventory for me? I know it’s up somewhat. It’s not unusual but could you break it down? And maybe you did that and I missed it in terms of finished goods and raw materials and work in progress.

Actually, our inventory turns improved from 13 to 15 in the quarter and finished goods were up from 151 up to 157 million, but as we indicated, that’s actually down from the same period last year. Mark Miller - Brean Murray, Carret & Co.: All right. Again, wonderful job. Thank you.

Richard Kugele. Richard Kugele - Needham & Company: Thanks a lot and I guess first, since it will affect your gross margin and my model, is Komag actually able to help you on some of these newer areal densities you are announcing, at least in the desktop side? Or are you buying those parts on the outside and using Komag for more the mainstream?

Rich, we’re both in the June or May and October 2.5-inch programs and in the 3.5-inch 320-gig per platter that we just announced, we have capability on both our internal heads and media, as well as capability from our external suppliers. So we use a blend of both. Richard Kugele - Needham & Company: Okay, and then from a capacity standpoint, how long -- I guess a lot of the $100 million you’ve spent to date has really been just on bringing the media business up to a greater percentage perpendicular, but how long do you think it will be before you actually have to add capacity on that side?

Some time, given that we expect to -- and the 300 basis point full year contribution on the cost side is driven from an expectation of yield utilization and throughput, increased capability from focus on a much narrower set of products. And we experienced, if you’ll recall, in the 2003-2004 experience of ramping the internal head capability, that a very significant contribution on yield and throughput capability came from rationalizing the product mix. Richard Kugele - Needham & Company: Okay. Thank you very much and well done.

Richard Kaiser.

I just wanted to inquire about a couple of comments you made pertaining to high velocity and high visibility. Historically in the storage disk drive markets, there have been a lot of volatility around pricing associated in part because of the distributor channel and I wanted to get your sense for if that has changed or not. You seemed in your comments to talk about more stability, more rational behavior, all major players. I just wondered if you could provide some color on that.

Yes, I think over the years, the reporting from the distribution channel has been significantly improved in terms of its timeliness and overall encompassing of the entire distribution set worldwide. Recognize also at the same time the number of drive companies has reduced significantly and the concentration of product through large distributors has increased. So total visibility in the entire distribution channel has improved dramatically over the past several years. We now have visibility to sell in and point of sale data, as well as of course visibility to manufacturing inventories servicing the large OEMs on a weekly basis for the entire industry, and all industry participants have access to that data. I think our ability to manage demand and match with supply has been dramatically improved over the last several years.

Okay, great. And then just one follow-up; there was something I didn’t quite understand. It was a comment with respect to pricing, I think it was, of DVR and it did not warrant additional investment. Could you just clarify what you meant there? I’m sorry, I missed that.

That market is a bit below the set of returns that we would like to see and what we are doing about it is where it’s a two-sided proposition. We are obviously going to work on our costs in order to make it more attractive to the customers. We are also going to work with the customers in order to make sure that they are aware and value our value proposition that we bring to the table. So really what we are saying is that we are directing our capacity to the more profitable segments and parts of the business and that one is below what we would like to see.

Great. Just one final question, if I might, and that is now you’ve made a point about how the business model is much more diversified and this gives you more flexibility and I’m just wondering if, in the context of consumer spending, we should also see that as a greater risk here.

I don’t believe so. I mean, if you look at the overall market data, typically most weight is given to the behavior of the IT and computing segment as it relates to potential hard drive sales. If you look at 2007 data, roughly 300 million PC systems shipped in 2007, while 500 million hard drives were shipped in 2007, so we’re getting an increase, a significant increase in the level of demand for large capacity storage devices that are not linked directly to the sales rate of PCs or industrial computing applications.

Great. Thank you.

I think that augers very well for balance and opportunity as we look forward.

Thank you.

David Bailey.

A couple of questions, if I may; the first, could you comment on how much capacity you are adding this year? And do you have any idea what the expectations are for the industry versus that sort of mid- to high-teens unit growth that you are expecting?

Well, I think our observations relative to industry capital, Seagate announced last week their intention to be very disciplined and frugal in relation to capacity investment. I think we’ve just reconfirmed that our capital plan, which we reduced by $50 million from 750 to 700 in our last call, that we’re sitting on the lower end, the 700 guide for our capital for the full year. So we are taking a very measured approach to capacity. The good thing is that the improved visibility we have into the demand and inventories in all channels gives us a much better informed base from which to make our capital decisions. We have also worked very hard in the past few years with our capital equipment suppliers, particularly as it relates to drive assembly capability and drive test capability, to shorten lead times so that we can react much closer to the visibility to true demand. And I think you’ve seen and the 2007 performance reflects all of those improvements in both visibility and execution of matching supply capacity to true demand.

And just to follow up on that on the visibility side, is your visibility longer range or is it more just a better idea of what’s going on in the short-term?

I think it’s a combination of the two. I mean, on a long range basis, we’re looking at the fundamental underlying drivers that are generating the 67% demand profile that we’ve seen over the last couple of years for billions of gigabytes of storage. As we come closer in to customer forecasts, customer orders, inventory levels, we have the ability to look at how we should match against that emerging short to medium term demand profile. And the other element that has helped in this regard is that as the late 2006, early 2007 returns in the industry were inadequate to fund aggressive investment looking at capacity going forward. Our OEM customers are beginning to realize the need to be more longer term in their views, and so we’ve seen a number of our OEM customers entering into multi-quarter agreements with us now to secure that most critical of all items, which is availability, to support their business plans.

Great. Thank you.

Steven Fox.

I was wondering, just looking at your outlook if you could talk about what you think happens to your branded sales as you go into the March quarter, since there’s not a lot of history there? What are your retail customers telling you? And then secondly, just getting back to that DVR comment, can you sort of quantify what that means in terms of your unit outlook going forward? Does it mean you hold steady at current levels or actually grow at a lower rate? I’m just trying to get a better feel for that.

Let me deal with branded first. The first calendar quarter is typically a strong quarter for branded products, particularly January/February period where we get a gift certificate redemption kind of boost to the market after the Christmas shopping period. What we are hearing from our retailers right now is that although they have some challenges, storage and particularly WD-branded storage is a very bright spot for them in terms of their retail sales in the stores, so we’re very encouraged by what we see so far in the quarter.

Thanks, and then on the --

The second part of the question was the CE space, the DVR. Again, the typical seasonality there is that it falls off significantly into the first calendar quarter, so typically volumes are down quarter to quarter. Our comment relative to margin contribution is more a question of what kind of capacity we put in place to support the July through December period next year, in 2008.

Great. Thank you.

Sherri Scribner.

I just wanted to explore a little bit more into your out-performance in the notebook side of the business. Do you feel like that’s OEMs coming to you because you have a superior areal density product or because you have a superior quality product? Can you maybe give a little detail there?

All of the above, Sherri. I think the really interesting observation is that the vast majority of the notebook marketplace is still seeking increased storage capacity. Case in point -- the latest IDC preliminary data for the December quarter indicates that SSDs shipped in notebook computers reached some quantity short of 5,000 units for the entire quarter. Hard drive of capacities of 250-gigabytes and 320-gigabytes shipped over 3.25 million units, of which WD supplied the majority.

Okay, great and then --

Technology is important in this marketplace -- good, high capacities are important in this marketplace and of course, you must deliver that leading edge technology with high reliability and high quality as a given.

Okay. Thank you. And then in terms of if I look at your share now, I mean, you’ve gained significant share Q-over-Q, probably somewhere approaching 20% share of the notebook market. There’s a lot of players in that market. Do you think that you are tapped out in terms of future share gains? How much share do you really think you can get beyond where you are right now?

Well, that will be an outcome for our customers to decide. All things being equal, you would think that with six players, there’d be one-sixth of the market for each. However, all things are never equal and our opportunity in that market is down to our ability to execute and to continue to delight customers with the right products that suit their product plans, and I believe we are very well-positioned to keep delighting our customers in that space.

Okay, maybe just quickly, do you have any -- what do you think about these three-platter notebook drives that are coming out at 500-gigabytes capacity? Do you think there’s demand there? Do you think there’s any issues with those drives?

Well, I think the -- as we do, I think it’s a strong endorsement of the view that there is a strong appetite for high-capacity solutions, both in the notebook and in the portable branded product space for 2.5-inch drives. So that’s the really good news. As I mentioned when I was talking about WD's future plans relative to markets, we announce products when we are shipping them in volume and we will continue to follow that practice. We will support our customers in meeting that currently insatiable appetite for large capacity drives for the notebook space.

Okay, great. Thank you very much.

Mark Moskowitz.

This is Anthony [Lescrit] for Mark Moskowitz. Going back to the branded business, can you contrast the relative strength in the European versus the U.S. markets and what have you seen through January thus far?

I think we are doing well in both geographies and consistent with our expectations relative to the seasonal patterns we have observed over the last couple of years.

Okay, and going forward, how much of the channel in OEM replenishment is supporting guidance for the March quarter, given the low base exiting December?

We don’t really look at our replenishment in terms of -- we’re happy with where the inventories are today. If I look at the total industry inventories, and that would be manufacturers inventory that we have in our own facilities and in the customer OEM JIT hubs and in transit, and I look at the channel inventories that our distributors hold on an industry-wide statement, on a combination of 2.5 and 3.5 SATA and PATA drives, which is the served market for WD, the days of inventory for the entire industry supply chain were down 11% year over year as of the end of December, and as of the beginning of week three of the current quarter, we are down 13% on a year-over-year basis. So I think the industry is manufacturing at a rate that is in very good synchronization with the actual demand. I think the inventories are in a very good place and so WD is pretty happy with the environment right now from an inventory supply management perspective.

Okay, thanks and one last question -- what was your capacity utilization exiting the quarter and expectation for March? Thanks.

Well, pretty full last quarter. We basically ran hot all quarter long and mixed to the best opportunities we could find in the demand space. We did not satisfy all available demand. Consequently, we expect to run pretty good utilizations through the March quarter. And understand under WD's model, we feel no compulsion to run our factories flat out. We run them efficiently. We take appropriate action to match hours worked and manning to demand levels but we do not need to run at 100% utilization to make money. In fact, we can run very significantly lower levels with that, so we match our supply to the demand that we see and we get visibility of that demand on a weekly basis and we’ll take appropriate actions.

Thank you.

Aaron Rakers.

Thanks for taking the questions and congratulations on the clean quarter. I would like to dive a little bit deeper into the gross margin line. You had said that 80 basis points from the Komag acquisition -- it would be very helpful to understand where the remaining sequential 420 basis points came from, be it mixed shift in terms of capacities. What I’m trying to get to is if I look at the mix of business towards mobile, are we starting to see mobile carry a better-than-average gross margin for the company?

Yes, you are, Aaron. If you look at what we’ve already indicated, enterprise is our highest margin product. Branded products is our next highest margin product and notebook comes pretty closely after that. And then there’s a bit of a gap between desktop and consumer electronics.

And so with that being said, as we roll into this next quarter, that 20% guidance roughly, that is factoring -- correct me if I’m wrong, you’re saying 300 basis points by the end of the year from Komag split across these next two quarters. With that being said, are you being a little bit cautious and seeing that come back due to pricing or why are you seeing that come back a little bit?

Actually, the difference between the 80 basis points and the 300 basis points is actually spread over four quarters because it’s the end of calendar --

Okay, that’s good. Thanks for the clarification. And I guess the other thing is on the channel inventory trends, where are you at in terms of weeks of channel inventory for yourself and relative to that to the industry?

We are sitting above the midpoint of our four to six week range.

Okay. Thank you very much.

Actually, on the four to six week range there, we will -- as we look at that, we are currently combining in that number both the bulk distribution and the branded products pipeline. So as branded products becomes a large amount of business for the industry and for ourselves, it’s likely that we will have to split that out going forward because the pipeline for branded product is in the seven to nine week range and the distribution bulk is in the four to six weeks range.

A final question, if I can jump in real quick; given your comments earlier, are you implying that for your notebook business -- what’s your average capacity for your notebook drives right now relative -- I believe Seagate told us that it was somewhere around 135. I’m trying to understand how much you are benefiting from just the technology leadership in that space.

We don’t publish what the average mix is but I will tell you that we did have a rich mix for the quarter and as we go into the next quarter, we don’t anticipate that that mix will be as rich because it will probably gravitate more towards the industry mix as there will be more participants in that, providing the higher capacity drives.

Okay. Thank you, guys.

Jeff Brickman.

I just wanted to ask a little more on the branded business. What do you see out there from the competition? And I guess more specifically, what advantages do you think you have that clearly have led to this solid growth? And do you think going forward that you can maintain a share position similar to what you see out there today?

Well, I think the advantages we have were an early start, very good industrial design, and very good ease of use software and product configuration, and very healthy relationships with our partners in the channels that take us to market. So we’ve got a very strong position, very well-recognized by the consumer and we’re going to continue to try to capitalize on those strengths as we move forward here.

And do you see anything from the competition, or anything new out there that makes you think that it might be more challenging to maintain what appears to be a very high level of market share going forward?

Well, I mean, competition is always tough in this business but we’re frankly more focused on the opportunities and the kinds of products and the markets and geographies and partners that we need to be choosing in order to sustain growth in that market and accelerate growth in that market than we are looking in the rear-view mirror to see who’s behind us.

Understood. And then, over on the competitive side in general, did you see anything in the way of increased price aggression at all towards the end of the year, or so far in this quarter, in January?

What we are seeing really in January so far is normal, typical pricing behavior. I mean, it’s always a tougher quarter than the Q2 quarter and we’re seeing exactly what we expect at this particular point.

Okay, great. Thanks a lot, guys.

Keith Bachman.

Tim, to follow the last question, what are your like-for-like pricing assumptions for the March quarter?

We don’t actually give out like-for-like pricing but as I indicated, we’re expecting typical seasonal type of price decline, and that’s what we are seeing so far.

Okay. Seagate -- on the notebook side, Seagate has the 250-gig notebook that they are shipping now. As you guys, you wouldn’t answer the previous question on your capacity points on the 2.5-inch, but can you indicate whether off of such a high base that you anticipate maintaining share this quarter, losing a little share, gaining share on the 2.5-inch side on a sequential basis?

Well, as I indicated, we’ve been shipping the 250-gigabyte capacity since May of last year and have a substantial share in the 250. And we do expect to have, as more people join with the capability to address that capacity point, we do expect to see some pressure there. However, we now have since October the 320-gigabyte capacity, which gives us the opportunity to satisfy our customers’ needs, to continue to increase the product offering in terms of the storage capacity that they can offer in their high-end product mix. And so we are baking into our numbers the expectation that there will be other competitors at the 250-gigabyte capacity point, but we are expecting that we will see a significant move up to 320. We’ve already begun to see that happen.

Okay, so 320 is still at a competitive advantage in your eyes for Western Dig?

Absolutely.

Okay. Tim, one last one for me -- rich cash flow this quarter. Your debt level is at 770-something and change. I know you are refining everything but as you think about the next three quarters, how will you think about applying the cash to pay down the debt versus growing the cash balance? How should we be thinking about the debt balances as we roll forward?

Well, it’s a term loan which gives us -- we’ll have a mix of revolver and term loan, and we are obviously -- we haven’t figured out yet how much of the refinancing is going to be revolver. We are still in negotiations with the banks about that but I mean, it will be -- what we will do as always is we will figure out what the most appropriate structure is and continue to take advantage of opportunities. Maybe if the share price, we still have $46 million left in the share repurchase authorization and if the opportunity presents itself and the market continues to give the sort of opportunities -- the macroeconomic market, I’m talking about -- continues to give the opportunities there, we would be opportunistic relative to buying back shares.

Interesting. Okay, thank you.

Joel Inman.

Can you talk a little bit about opportunities for further expansion in the enterprise market, with maybe new protocols or new product offerings?

We have indicated that we have strong growth opportunities in all the currently served markets and those opportunities arise through the growth of those markets, as well as the opportunity to out-execute on quality, reliability, and customer service and products. And we’ve also indicated that there are other parts of the market -- gaming, high performance enterprise -- where we don’t currently compete and that it is our intention over time to be a full line supplier to the industry. Outside of that, we’ll announce products as we ship them.

Okay, thanks. And just one follow-up; can you give us some idea of the Komag revenue wind-down over the course of this year?

As we indicated, it will be -- we are forecasting it to be $50 million this quarter and after that, it will be so insignificant that we won’t be breaking it out.

Okay. Thank you.

[Jayhin Garani]. Jayhin Garani - Standard & Poor’s: Just a couple of housekeeping I think I missed -- on the channel breakout for the December quarter, could you just tell me what the disti and the OEM was, please?

OEM was 48%, distributors was 34%, and retail was 18%. Jayhin Garani - Standard & Poor’s: Right, and then I just wanted to get your impression. You did mention SSDs and the units shipped, the IDC number. We also heard from EMC about incorporating an SSD drive, an enterprise SSD drive. What is your view on that and give me some color on what you think about that?

I think the -- I think both of the areas where SSDs have shown up so far are valid niche markets. But they are niche markets and it’s a significant endorsement to see EMC bring out a product at the very high end of the performance spectrum. But recognize of the 8 million or so drives shipped into that enterprise space, less than 2 million are addressing high performance in that category of performance, and this SSD announcement is a small slice of that small slice. So it’s a niche application which offers some opportunity for system designers to tune performance. Jayhin Garani - Standard & Poor’s: Okay, but longer term, what would you have to see to even consider that technology to be something that you would address?

As those niche applications grow, and I’m confident they will grow, we look at -- if you look at the characteristics, Flash is media. You have to then match that up with a controller and applications knowledge and knowledge of how to put that whole thing together in a reliable way to make it look and behave like a hard drive, which is the application. And so who better to take media and integrate it and ship it into a market where there is deep experience and knowledge of the application than the hard drive companies. So as we see that market becoming large enough to justify the engineering investments, it’s highly likely that you will see WD and other drive manufacturers address that market segment. Jayhin Garani - Standard & Poor’s: I guess what I was trying to determine, and maybe you did give me some hint about that, is how much of an engineering effort, if you will, does it take for you to get there versus the IP that you already have in-house? Or is it something you can go out and buy?

Be aware that in 1989, Western Digital was shipping SSDs in partnership with SunDisk, which was a precursor to the current SanDisk, so there is a significant body of knowledge relative to how to take solid state media and incorporate it in a drive product. Jayhin Garani - Standard & Poor’s: Thank you very much.

Thank you and our last question comes from Richard Kugele. Richard Kugele - Needham & Company: Thanks for the quick follow-up here. Two quick ones; seasonality, what are your expectations for the industry in the first quarter? I know you are talking about if the December was an out-size quarter for you that perhaps your sequential will be a little bit greater. We’ll see if that plays out but in terms of the industry expectations, what are your thoughts there for the first quarter?

We’re anticipating 3% to 5% reduction in the TAM quarter-on-quarter. Richard Kugele - Needham & Company: Okay, and then lastly, since you brought it up about break-even being lowest in the industry, I know Seagate has made public comments that theirs is now down to 12% to 13% gross margin, that they would be able to break even. Do you have any comments on where we should be thinking yours is post Komag?

Not really, no. Richard Kugele - Needham & Company: Okay, fair enough. Thank you very much.

I would now like to turn the call over to Mr. John Coyne.

Thank you, Operator. In closing, I want to thank you all for joining us today. I’d also like to thank again our employees, our suppliers, and our customers for an outstanding December quarter and we look forward to updating you on progress as we execute our strategies and address the vast opportunities we see ahead of us in the storage market. Thank you.

Thank you. This does conclude today’s conference call. You may disconnect at this time.