Back to top

Image: Bigstock

Western Digital (WDC) Q2 Earnings, Revenues Lag Estimates

Read MoreHide Full Article

Western Digital Corp. (WDC - Free Report) reported second-quarter fiscal 2019 non-GAAP earnings of $1.45 per share which lagged the Zacks Consensus Estimate by 6 cents and slumped 63% from the year-ago quarter. Moreover, the figure declined approximately 52% on a sequential basis.

Revenues decreased 21% year over year to $4.233 billion and missed the Zacks Consensus Estimate of $4.241 billion. Moreover, the figure declined 16% sequentially.

Uncertain macroeconomic environment, declining trend in PC shipments and softness in NAND flash pricing trends adversely impacted results.


 

Notably, Western Digital shares are up almost 9.6% in the after-hours trading. This can primarily be attributed to optimistic revenue outlook for the second half of fiscal 2019. Notably, the stock has lost 53.7% in the past year, compared with the industry’s decline of 27.2%.

Segment Revenue Details

Client devices (52.3% of total revenues) declined16.4% year over year and came in at $2.214 billion. The figure was down 16.5% sequentially. Sluggish demand across smartphone and PC markets affected the segment results.

Client solutions (22.3%) slumped 24.7% year over year to reach $945 million. The figure inched up 1.4% sequentially.

Notably, the company is facing challenges owing to NAND flash pricing, which is currently on the decline on account of oversupply and weaker-than-expected growth in end-market demand.

Management noted that revenues from client compute SSDs exceeded client compute HDD revenues for the first time.

Data center devices and solutions (25.4%) plummeted 25.1% year over year to $1.074 billion, owing to weakness in end-market. The figure was down 25.7% sequentially.

 

Other Metrics

The company shipped 30.2 million HDDs at an average selling price ("ASP") of $67. The reported shipments were lower than the year-ago figure of 42.3 million. Notably, the Zacks Consensus Estimate for total unit shipments and ASP were pegged at 36.69 million and $67, respectively.

While Flash exabytes shipments improved 5% sequentially, HDD Exabytes shipments declined 17% on a quarter-over-quarter basis. Total exabytes sales (excluding non-memory products) declined 15% sequentially.

Considering revenues by product group, HDD revenues (48.7% of total revenues) declined 23.5% from the year-ago quarter to reach $2.06 billion. Flash revenues (51.3%) fell 17.8% from the year-ago quarter to reach $2.173 billion.

ASP/Gigabytes (excluding non-memory products) declined 18% sequentially.

Western Digital Corporation Price, Consensus and EPS Surprise

Western Digital Corporation Price, Consensus and EPS Surprise | Western Digital Corporation Quote

 

Operating Details

Non-GAAP gross margin of 31.3% declined from the year-ago figure of 43.2% and contracted 670 bps sequentially. Management attributed the decline to unfavorable product mix for HDDs which included less capacity enterprise solutions and softness in Flash pricing.

Non-GAAP operating expenses declined 14.7% from the year-ago quarter to $738 million.

Non-GAAP operating income of $589 million plummeted 59.1% to $589 million. The company reported non-GAAP operating margin of 13.9% in the quarter which declined from the year-ago figure of 27% and contracted 770 bps on a sequential basis.

Balance Sheet & Cash Flow

As of Dec 28, 2018, cash and cash equivalents were $4.01 billion, down from $4.65 billion reported in the previous quarter. Total debt (including current portion) was $10.61 billion, down from $11.14 billion at the end of the previous quarter.

Western Digital generated $469 million in cash from operations compared with $705 million in first-quarter fiscal 2019. Free cash flow came in at $24 million in the reported quarter. During the quarter, the company paid dividends worth $144 million.

On Nov 7, 2018, Western Digital’s board of directors approved a cash dividend of 50 cents per share payable Jan 14, 2019.

Guidance

For third-quarter fiscal 2019, revenues are expected to be in the range of $3.6-$3.8 billion. The Zacks Consensus Estimate is pegged at $4.01 billion.

Non-GAAP gross margin is anticipated to come in at 28%.

Non-GAAP operating expenses are expected between $760 million and $780 million. Interest and other expenses are estimated approximately at $105 million.

Management projects non-GAAP earnings between 40 cents and 60 cents per share. The Zacks Consensus Estimate is pegged at $1.13.

Notably, management anticipates year-over-year growth trend to “resume in the second half of calendar 2019."

Western Digital anticipates exabyte growth rate in capacity enterprise to witness around 40% CAGR.

From the Flash industry perspective, Western Digital maintains its estimates for industry bit growth to be in the estimated long-term range (between 36% and 38%).

Zacks Rank & Stocks to Consider


Western Digital currently carries a Zacks Rank #5 (Strong Sell).

Some better-ranked stocks in the broader Computer and Technology sector are Cloudera , Marvell Technology Group Ltd. (MRVL - Free Report) and MeetMe , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Cloudera, Marvell and MeetMe is forecast at 8%, 9.4% and 20%, respectively.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>


See More Zacks Research for These Tickers


Normally $25 each - click below to receive one report FREE:


Western Digital Corporation (WDC) - free report >>

Marvell Technology, Inc. (MRVL) - free report >>

Published in