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Business Segments, Geographic Information, and Concentrations of Risk
 3 Months Ended
Sep. 30, 2022
Segment Reporting [Abstract]  
Business Segments, Geographic Information, and Concentrations of Risk Business Segments, Geographic Information, and Concentrations of Risk
The following table summarizes the operating performance of the Company’s reportable segments:
Three Months Ended
September 30,
2022		October 1,
2021
(in millions, except percentages)
Net revenue:
Flash$1,722 $2,490 
HDD2,014 2,561 
Total net revenue$3,736 $5,051 
Gross profit:
Flash$422 $921 
HDD574 792 
Total gross profit for segments996 1,713 
Unallocated corporate items:
Stock-based compensation expense(14)(9)
Amortization of acquired intangible assets(1)(39)
Total unallocated corporate items(15)(48)
Consolidated gross profit$981 $1,665 
Gross margin:
Flash24.5 %37.0 %
HDD28.5 %30.9 %
Consolidated gross margin26.3 %33.0 %

Disaggregated Revenue

The Company’s broad portfolio of technology and products address multiple end markets. Cloud represents a large and growing end market comprised primarily of products for public or private cloud environments and end customers, which the Company believes it is uniquely positioned to address as the only provider of both Flash and HDD. Through the Client end market, the Company provides its original equipment manufacturer (“OEM”) and channel customers a broad array of high-performance flash and hard drive solutions across personal computer, mobile, gaming, automotive, virtual reality headsets, at-home entertainment, and industrial spaces. The Consumer end market is highlighted by the Company’s broad range of retail and other end-user products, which capitalize on the strength of the Company’s product brand recognition and vast points of presence around the world.
The Company’s disaggregated revenue information is as follows:
Three Months Ended
September 30,
2022		October 1,
2021
(in millions)
Revenue by End Market
Cloud$1,829 $2,225 
Client1,229 1,853 
Consumer678 973 
Total Revenue$3,736 $5,051 
Revenue by Geography
Asia$1,686 $2,675 
Americas1,423 1,614 
Europe, Middle East and Africa627 762 
Total Revenue$3,736 $5,051 

The Company’s top 10 customers accounted for 52% of its net revenue for the three months ended September 30, 2022, and 43% of its net revenue for the three months ended October 1, 2021. For the three months ended September 30, 2022 and October 1, 2021, no single customer accounted for 10% or more of the Company’s net revenue.

Goodwill

The following table provides a summary of goodwill activity for the period:
FlashHDDTotal
(in millions)
Balance at July 1, 2022$5,718 $4,323 $10,041 
Foreign currency translation adjustment(2)(2)(4)
Balance at September 30, 2022$5,716 $4,321 $10,037 

Goodwill is not amortized. Instead, it is tested for impairment annually as of the beginning of the Company’s fourth quarter, or more frequently if events or changes in circumstances indicate that goodwill may be impaired. The Company uses qualitative factors to determine whether goodwill is more-likely-than-not impaired and whether a quantitative test for impairment is considered necessary. If the Company concludes from the qualitative assessment that goodwill is more likely than not impaired, the Company is required to perform a quantitative approach to determine the amount of impairment

As of September 30, 2022, management identified several factors, including changes in macroeconomic conditions and a recent decline of the Company’s market stock price, that warranted a quantitative analysis of impairment for both the Flash and HDD reporting units as of that date. The fair value of each operating segment was based on a weighting of two valuation methodologies: an income approach and a market approach.

The income approach was based on the present value of the projected discounted cash flows (“DCF”) expected to be generated by the operating segment. Those projections required the use of significant estimates and assumptions specific to the reporting unit as well as those based on general economic conditions, which included, among other factors, revenue growth rates, gross margins, operating costs, capital expenditures, assumed tax rates and other assumptions deemed reasonable by management. The present value was based on applying a weighted average cost of capital (“WACC”) which considered long-term interest rates and cost of equity based on the Company’s risk profile.

The market approach was based on a guideline company method, which analyzed market multiples of revenue and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for a group of comparable public companies.
We reconciled the aggregated estimated fair value of both operating segments to the Company’s market capitalization, including consideration of a control premium representing the estimated amount a market participant would pay to obtain a controlling interest in the Company.

As of September 30, 2022, the fair value derived from those valuation methodologies exceeded the carrying value by 7% and 32% for Flash and HDD, respectively, and no impairment was recognized.

The Company is required to use judgment when applying the goodwill impairment test, including the assignment of assets and liabilities to reporting units, and determination of the fair value of each reporting unit. In addition, the estimates used to determine the fair value of reporting units may change based on future changes in the Company’s results of operations, macroeconomic conditions or other factors. Changes in these estimates could materially affect the Company’s assessment of the fair value and goodwill impairment. In addition, if negative macroeconomic conditions continue or worsen or the Company’s stock price decreases for a sustained period of time, goodwill could become impaired, which could result in an impairment charge and materially adversely affect the Company’s financial condition results of operations.