Western Digital Delivers

Western Digital (WDC - Snapshot Report) reported first quarter 2010 EPS of $1.25, exceeding the Zacks Consensus Estimate of 90 cents per share.

Revenue

Western Digital reported first quarter 2010 revenue of $2.21 billion, up 5% from the prior year and 15% on a sequential basis. Revenue from sales of Western Digital branded products, like WD TV, was $382 million, almost flat with the year-ago quarter and up 20% sequentially from $318 million in the previous quarter. The company witnessed rational industry pricing during the quarter, as supply and demand were evenly balanced.

Revenues by sales channel were as follows: 52% from OEM, 31% distribution and 17% branded products, compared to 56%, 26% and 18%, respectively, in the year-ago quarter and 54%, 29% and 17%, respectively in the previous quarter.

Average hard drive selling price was around $49 per unit, down $4 from the year-ago quarter, but up $1 from the previous quarter. The first quarter average selling price (ASP) reflects a stable pricing environment, which can be attributed to favorable market conditions.

Operating Results

The company’s first quarter gross margin was 23% up from 20% in the year-ago quarter and 19% in the previous quarter. This improvement in gross margin was a result of stronger than expected demand, better factory and supply chain utilization, and favorable product mix.

Total R&D and SG&A spending reduced to $195 million, or 9% of revenue, versus $190 million, or 9% of revenue in the year-ago quarter, and $184 million, or 9% of revenue in the previous quarter. The company is currently spending on technological advancements, new products and programs. Operating income for the quarter was $319 million, or 14% of revenue, versus $234 million, or 11% of revenue in the year-ago quarter, and $209 million, or 11% of revenue in the previous quarter.

Net Income for the recently concluded quarter was $288 million, or $1.25 per share, compared to $211 million, or 93 cents per share in the year-ago quarter, and $196 million, or 86 cents per share in the previous quarter.

Cash Position

The company generated $434 million in cash from operations. Cash and cash equivalents increased by $262 million, ending at $2.06 billion. Capital expenditures were $176 million and second quarterly debt-repayment was $19 million. This apart, the company reported a cash conversion cycle of negative 4 days.

Guidance

For the second quarter of 2010, the company expects revenue in the range of $2.25 billion to $2.35 billion, gross margin of 23.3%, total R&D and SG&A of approximately $200 million and earnings per share of $1.26 to $1.36.