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Western Digital Corp. (WDC - Analyst Report) posted fourth-quarter 2013 adjusted earnings per share of $1.96, comprehensively beating the Zacks Consensus Estimate of $1.79.

Revenues

Revenues during the quarter decreased 21.6% year over year to $3.73 billion and were above the company’s guidance range of $3.55 billion – $3.65 billion. The company’s revenues declined primarily as a result of modest price declines and a seasonal change in business mix.

The company shipped a total of 59.9 million hard drives, having an average selling price (ASP) of $60 per unit. The company exceeded their revenue guidance primarily on the back of better-than-expected business mix and lower-than-expected price declines.

Operating Results

Gross margin for the quarter was 28.2% up from 31.0% in the year-ago quarter. Although GAAP gross margin declined, non-GAAP gross margin was approximately 60 basis points (bps) better than the company’s guidance, reflecting better-than-expected business mix and capacity utilization and lower-than-anticipated price declines.

Operating margin for the quarter was 12.3%, down from 16.9% reported in the year-ago quarter. Total operating expenses increased 17.8% due to higher product development cost and other expenses.

Net income for the quarter was $416.0 million or $1.71 per share, up from $745.0 million or $2.87 per share in the year-ago quarter. Excluding amortization of intangibles related to the acquisition of HGST, employee termination benefits and other charges, non-GAAP/adjusted basis net income was $477 million or $1.96 per share, compared with $872 million or $3.35 per share.

Balance Sheet & Cash Flow

The company generated $684.0 million cash from operations in the third quarter, down from $727.0 million in the year-ago quarter. Cash and cash equivalents were $4.31 billion, up from $4.06 billion in the previous quarter.

The company repurchased 4.4 million shares for $235.0 million during the June quarter.

Guidance

For the first quarter, revenues are expected in the range of $3.7 billion to $3.8 billion, attributable to price declines and a seasonal change in business mix. Gross margin is expected to be flat, excluding R&D and SG&A spending of approximately $550 million and the amortization of HGST intangibles. The tax rate is expected to be within 7 to 10%, while the share count is expected to be 242 million. As a result of this, non-GAAP earnings per share of between $1.95 and $2.05 are expected for the September quarter.

Outlook

The company’s fourth-quarter earnings were mixed. Revenues decreased substantially, in spite of improvement in demand, a decent price environment and good shipping. The secular growth of digital data and growing exposure to the small and medium business space are long-term positives. The company is rolling out new storage devices to attract more customers. However, increased innovation has resulted in higher R&D expenses, which may lead to flat margins.

SanDisk Corp. and Western Digital are coming up with innovative product to grab additional market share, whereas new acquisitions such as Velobit continues to make WDC’s position even stronger.

Western Digital Corp. carries a Zacks Rank #3 (Hold).

Investors can also look at other stocks that are performing well such as Zynga Inc. (ZNGA - Snapshot Report),SanDisk Corp. (SNDK - Analyst Report) and Aspen Tech Inc. (AZPN - Snapshot Report). All these companies carry a Zacks Rank #1 (Strong Buy).

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