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Western Digital (WDC) Stock Down Despite Q4 Earnings Beat
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Western Digital Corporation (WDC - Free Report) reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.23 per share, which surpassed the Zacks Consensus Estimate by 2.5%. Further, the bottom line improved 624% year over year and 45% sequentially.
Revenues of $4.287 billion increased 18% year over year and 2.7% sequentially. Performance was driven by robust demand from cloud customers during the reported quarter and robust uptake of client Solid State Drive (SSDs) for notebooks. Also, an uptrend in NAND flash pricing contributed to growth.
However, the top line lagged the Zacks Consensus Estimate by 1.35%.
Shares Down on Bleak View
Following mixed fourth-quarter fiscal 2020 results and bleak first-quarter fiscal 2021 guidance, shares of Western Digital were down more than 11% in the pre-market trading on Aug 6.
For first-quarter fiscal 2021, revenues are expected in the range of $3.7-$3.9 billion. The Zacks Consensus Estimate for revenues is currently pegged at $4.29 billion. Management projects non-GAAP earnings between 45 cents and 65 cents per share. The Zacks Consensus Estimate for earnings currently stands at $1.20.
Notably, shares have fallen 29.9% year to date, compared with the industry’s decline of 24.1%.
Quarter in Detail
Client devices’ revenues (45% of total revenues) increased 19% year over year and 5% sequentially to $1.831 billion, driven by solid revenues from client SSDs.
Moreover, the company witnessed increased demand for notebook solutions due to growing work-from home and web-based learning trends on account of the coronavirus pandemic. However, softened demand for hard drive revenues pertaining to desktop and smart video hard drives limited segment growth.
In gaming domain, the company commenced shipping of flash solutions for the forthcoming console launches.
Client solutions’ revenues (16%) declined 9% year over year to $687 million. Also, the figure decreased 16% sequentially due to impact of COVID-19’s on retail demand.
Notably, lockdowns have forced brick-and-mortar retail stores to temporarily close down. Nevertheless, the company witnessed pickup in June, which continued into July.
Data center devices and solutions’ revenues (39%) increased 32% year over year and 11% sequentially to $1.684 billion, driven by strong traction for Enterprise SSDs.
Additionally, the company is witnessing robust demand for its high capacity drives and ramping production of 16 and 18-terabyte energy assisted drives.
Considering revenues by product group, HDD revenues (47.8% of total revenues) declined 3.1% from the year-ago quarter’s level and 3.7% on a sequential basis to $2.049 billion, owing to ongoing transition to SSDs. Flash revenues (52.2%) improved 49% from the year-ago quarter’s figure and 8.6% sequentially to $2.238 billion, driven by an uptrend in NAND flash pricing.
Key Metrics
The company shipped 23.1 million HDDs at an average selling price (ASP) of $87. The reported shipments were lower than the year-ago quarter’s figure by 16.6%.
On a quarter-over-quarter basis, HDD Exabytes sales declined 2%. Flash exabytes sales increased 8%. Total exabytes sales (excluding non-memory products) were down 1% sequentially.
ASP/Gigabytes (excluding non-memory products) inched up 1% sequentially.
Margins
Non-GAAP gross margin of 28.9% expanded 470 basis points (bps) on a year-over-year basis.
Notably, non-GAAP Flash gross margin was 30.5%, up from the year-ago quarter figure of 18.7%, driven by pricing uptrends and cost reduction measures. Meanwhile, non-GAAP HDD gross margin contracted 90 bps year over year to 27.2%.
Non-GAAP operating expenses declined 1.2% from the year-ago quarter to $713 million. Management remains focused on undertaking strict spending measures.
Western Digital Corporation Price, Consensus and EPS Surprise
Non-GAAP operating income came in at $527 million, which soared 233.5% year over year. As a percentage of revenues, non-GAAP operating margin of 12.3% expanded 800 bps on a year-over-year basis.
Balance Sheet & Cash Flow
As of Jul 3, 2020, cash and cash equivalents were $3.048 billion, compared with $2.943 billion reported as of Apr 3, 2020.
Total debt (including current portion) was $9.575 billion as of Jul 3, 2020, compared with $9.629 billion as of Apr 3, 2020, having repaid debt of $63 million in the fiscal fourth quarter.
Western Digital generated $172 million in cash from operations compared with $142 million reported in the previous quarter.
Free cash flow came in at $261 million compared with $176 million in the prior quarter.
During the quarter, the company paid out dividends worth $150 million.
On Apr 30, Western Digital suspended its dividend policy to strengthen reinvestment in innovation and growth, and to facilitate ongoing deleveraging efforts.
Guidance
For first-quarter fiscal 2021, non-GAAP gross margin is anticipated in the range of 25-27%.
Non-GAAP operating expenses are expected between $700 million and $720 million. Interest and other expenses are estimated between $70 million and $80 million.
Zacks Rank & Stocks to Consider
Currently, Western Digital carries a Zacks Rank #5 (Strong Sell).
Long-term earnings growth rate of Dropbox, Asure Software, and Analog Devices is pegged at 16.83%, 14% and 13.33%, respectively.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021. Click here for the 6 trades >>
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Western Digital (WDC) Stock Down Despite Q4 Earnings Beat
Western Digital Corporation (WDC - Free Report) reported fourth-quarter fiscal 2020 non-GAAP earnings of $1.23 per share, which surpassed the Zacks Consensus Estimate by 2.5%. Further, the bottom line improved 624% year over year and 45% sequentially.
Revenues of $4.287 billion increased 18% year over year and 2.7% sequentially. Performance was driven by robust demand from cloud customers during the reported quarter and robust uptake of client Solid State Drive (SSDs) for notebooks. Also, an uptrend in NAND flash pricing contributed to growth.
However, the top line lagged the Zacks Consensus Estimate by 1.35%.
Shares Down on Bleak View
Following mixed fourth-quarter fiscal 2020 results and bleak first-quarter fiscal 2021 guidance, shares of Western Digital were down more than 11% in the pre-market trading on Aug 6.
For first-quarter fiscal 2021, revenues are expected in the range of $3.7-$3.9 billion. The Zacks Consensus Estimate for revenues is currently pegged at $4.29 billion. Management projects non-GAAP earnings between 45 cents and 65 cents per share. The Zacks Consensus Estimate for earnings currently stands at $1.20.
Notably, shares have fallen 29.9% year to date, compared with the industry’s decline of 24.1%.
Quarter in Detail
Client devices’ revenues (45% of total revenues) increased 19% year over year and 5% sequentially to $1.831 billion, driven by solid revenues from client SSDs.
Moreover, the company witnessed increased demand for notebook solutions due to growing work-from home and web-based learning trends on account of the coronavirus pandemic. However, softened demand for hard drive revenues pertaining to desktop and smart video hard drives limited segment growth.
In gaming domain, the company commenced shipping of flash solutions for the forthcoming console launches.
Client solutions’ revenues (16%) declined 9% year over year to $687 million. Also, the figure decreased 16% sequentially due to impact of COVID-19’s on retail demand.
Notably, lockdowns have forced brick-and-mortar retail stores to temporarily close down. Nevertheless, the company witnessed pickup in June, which continued into July.
Data center devices and solutions’ revenues (39%) increased 32% year over year and 11% sequentially to $1.684 billion, driven by strong traction for Enterprise SSDs.
Additionally, the company is witnessing robust demand for its high capacity drives and ramping production of 16 and 18-terabyte energy assisted drives.
Considering revenues by product group, HDD revenues (47.8% of total revenues) declined 3.1% from the year-ago quarter’s level and 3.7% on a sequential basis to $2.049 billion, owing to ongoing transition to SSDs. Flash revenues (52.2%) improved 49% from the year-ago quarter’s figure and 8.6% sequentially to $2.238 billion, driven by an uptrend in NAND flash pricing.
Key Metrics
The company shipped 23.1 million HDDs at an average selling price (ASP) of $87. The reported shipments were lower than the year-ago quarter’s figure by 16.6%.
On a quarter-over-quarter basis, HDD Exabytes sales declined 2%. Flash exabytes sales increased 8%. Total exabytes sales (excluding non-memory products) were down 1% sequentially.
ASP/Gigabytes (excluding non-memory products) inched up 1% sequentially.
Margins
Non-GAAP gross margin of 28.9% expanded 470 basis points (bps) on a year-over-year basis.
Notably, non-GAAP Flash gross margin was 30.5%, up from the year-ago quarter figure of 18.7%, driven by pricing uptrends and cost reduction measures. Meanwhile, non-GAAP HDD gross margin contracted 90 bps year over year to 27.2%.
Non-GAAP operating expenses declined 1.2% from the year-ago quarter to $713 million. Management remains focused on undertaking strict spending measures.
Western Digital Corporation Price, Consensus and EPS Surprise
Western Digital Corporation price-consensus-eps-surprise-chart | Western Digital Corporation Quote
Non-GAAP operating income came in at $527 million, which soared 233.5% year over year. As a percentage of revenues, non-GAAP operating margin of 12.3% expanded 800 bps on a year-over-year basis.
Balance Sheet & Cash Flow
As of Jul 3, 2020, cash and cash equivalents were $3.048 billion, compared with $2.943 billion reported as of Apr 3, 2020.
Total debt (including current portion) was $9.575 billion as of Jul 3, 2020, compared with $9.629 billion as of Apr 3, 2020, having repaid debt of $63 million in the fiscal fourth quarter.
Western Digital generated $172 million in cash from operations compared with $142 million reported in the previous quarter.
Free cash flow came in at $261 million compared with $176 million in the prior quarter.
During the quarter, the company paid out dividends worth $150 million.
On Apr 30, Western Digital suspended its dividend policy to strengthen reinvestment in innovation and growth, and to facilitate ongoing deleveraging efforts.
Guidance
For first-quarter fiscal 2021, non-GAAP gross margin is anticipated in the range of 25-27%.
Non-GAAP operating expenses are expected between $700 million and $720 million. Interest and other expenses are estimated between $70 million and $80 million.
Zacks Rank & Stocks to Consider
Currently, Western Digital carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the broader technology sector are Dropbox (DBX - Free Report) , Asure Software, Inc. (ASUR - Free Report) and Analog Devices (ADI - Free Report) . While Asure Software sports a Zacks Rank #1 (Strong Buy), both Analog Devices and Dropbox carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Long-term earnings growth rate of Dropbox, Asure Software, and Analog Devices is pegged at 16.83%, 14% and 13.33%, respectively.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>