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Western Digital Raises Q1 Guidance Following SanDisk Buy
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Shares of Western Digital Corporation (WDC - Free Report) went up more than 12% in yesterday’s after-hours trading session after the world’s leading hard-disk drive (HDDs) manufacturer raised its first-quarter fiscal 2017 outlook.
The company updated its fiscal first-quarter outlook to reflect the integration of its recently completed SanDisk acquisition and also its WD and HGST subsidiaries. Western Digital had announced the completion of the buyout on May 12.
The company now projects revenues in the range of $4.45 billion to $4.55 billion, up from its previous guidance of $4.4 billion to $4.5 billion (mid-point $4.45 billion). The Zacks Consensus Estimate for the quarter stands at $3.41 billion.
Also, Western Digital forecasts non-GAAP earnings to be in the range of $1.00 to $1.05 per share, higher than the prior projection of 85–90 cents (mid-point: 87.5 cents). The Zacks Consensus Estimate is currently pegged at 68 cents.
The company projected non-GAAP gross margin of approximately 33%, higher than the previous projection of 32%, primarily due to favourable product mix and pricing. Non-GAAP operating expenses are projected to be approximately $905 million compared with the earlier forecast of $875 million.
The upbeat revenues and earnings outlook for the fiscal first quarter boosted investor confidence to a large extent.
Note that this is the third time that Western Digital has updated its fiscal first-quarter outlook to accommodate the impact of the integration of the SanDisk acquisition and integrate its WD and HGST subsidiaries.
Western Digital is counting heavily on SanDisk to keep the company floating amid a challenging business environment. Notably, Western Digital derives the bulk of its revenues from the sale of HDDs, which are used mainly by PC manufacturers. The company is the largest U.S. manufacturer of HDDs with a 44% market share, followed closely by Seagate Technologies (STX - Free Report) with a 40% share. However, the persistent decline in PC sales has been hurting Western Digital’s HDD shipments over the past several quarters, which in turn dented its revenues.
As a result, the world’s leading HDD manufacturer has been struggling to lower its dependence on PC storage and shifting focus to the rapidly growing flash and cloud storage businesses to boost its top line.
The SanDisk buyout is expected to open newer avenues for growth for Western Digital and help the company in capturing market traction in SSD. The merger will lead to economies of scale, lower costs, increase market reach and improve product breadth, among other things. The company will also be able to offer competitive solutions in cloud-based computing, which has taken the digital storage solution space by storm over the past couple of years.
Western Digital reported better-than-expected fourth-quarter fiscal 2016 results, wherein both the top-and bottom lines surpassed the Zacks Consensus Estimate. Also, revenues increased on a year-over-year basis.
Nonetheless, the shift toward non-PC applications, secular growth of digital data and growing exposure to the small and medium business space are the long-term positives. Additionally, higher demand for storage is expected to lead to a positive earnings surprise in the ongoing quarter.
We remain encouraged by the company’s launch of a string of storage devices under the mobile and cloud segment. Continued investments in product innovation could result in flattish margins in the near term.
Also, Western Digital’s entry into the wireless devices market comes at a time when storage services related to smartphones and tablets are witnessing large-scale adoption. These factors are expected to be growth catalysts, going forward.
Western Digital currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the technology sector are NetApp, Inc. (NTAP - Free Report) and NVIDIA Corporation (NVDA - Free Report) , both carrying a Zacks Rank #1 (Strong Buy).
Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).
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Western Digital Raises Q1 Guidance Following SanDisk Buy
Shares of Western Digital Corporation (WDC - Free Report) went up more than 12% in yesterday’s after-hours trading session after the world’s leading hard-disk drive (HDDs) manufacturer raised its first-quarter fiscal 2017 outlook.
The company updated its fiscal first-quarter outlook to reflect the integration of its recently completed SanDisk acquisition and also its WD and HGST subsidiaries. Western Digital had announced the completion of the buyout on May 12.
The company now projects revenues in the range of $4.45 billion to $4.55 billion, up from its previous guidance of $4.4 billion to $4.5 billion (mid-point $4.45 billion). The Zacks Consensus Estimate for the quarter stands at $3.41 billion.
Also, Western Digital forecasts non-GAAP earnings to be in the range of $1.00 to $1.05 per share, higher than the prior projection of 85–90 cents (mid-point: 87.5 cents). The Zacks Consensus Estimate is currently pegged at 68 cents.
The company projected non-GAAP gross margin of approximately 33%, higher than the previous projection of 32%, primarily due to favourable product mix and pricing. Non-GAAP operating expenses are projected to be approximately $905 million compared with the earlier forecast of $875 million.
The upbeat revenues and earnings outlook for the fiscal first quarter boosted investor confidence to a large extent.
Note that this is the third time that Western Digital has updated its fiscal first-quarter outlook to accommodate the impact of the integration of the SanDisk acquisition and integrate its WD and HGST subsidiaries.
Western Digital is counting heavily on SanDisk to keep the company floating amid a challenging business environment. Notably, Western Digital derives the bulk of its revenues from the sale of HDDs, which are used mainly by PC manufacturers. The company is the largest U.S. manufacturer of HDDs with a 44% market share, followed closely by Seagate Technologies (STX - Free Report) with a 40% share. However, the persistent decline in PC sales has been hurting Western Digital’s HDD shipments over the past several quarters, which in turn dented its revenues.
As a result, the world’s leading HDD manufacturer has been struggling to lower its dependence on PC storage and shifting focus to the rapidly growing flash and cloud storage businesses to boost its top line.
The SanDisk buyout is expected to open newer avenues for growth for Western Digital and help the company in capturing market traction in SSD. The merger will lead to economies of scale, lower costs, increase market reach and improve product breadth, among other things. The company will also be able to offer competitive solutions in cloud-based computing, which has taken the digital storage solution space by storm over the past couple of years.
WESTERN DIGITAL Price
WESTERN DIGITAL Price | WESTERN DIGITAL Quote
To Conclude
Western Digital reported better-than-expected fourth-quarter fiscal 2016 results, wherein both the top-and bottom lines surpassed the Zacks Consensus Estimate. Also, revenues increased on a year-over-year basis.
Nonetheless, the shift toward non-PC applications, secular growth of digital data and growing exposure to the small and medium business space are the long-term positives. Additionally, higher demand for storage is expected to lead to a positive earnings surprise in the ongoing quarter.
We remain encouraged by the company’s launch of a string of storage devices under the mobile and cloud segment. Continued investments in product innovation could result in flattish margins in the near term.
Also, Western Digital’s entry into the wireless devices market comes at a time when storage services related to smartphones and tablets are witnessing large-scale adoption. These factors are expected to be growth catalysts, going forward.
Western Digital currently carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the technology sector are NetApp, Inc. (NTAP - Free Report) and NVIDIA Corporation (NVDA - Free Report) , both carrying a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here
Interested in IPOs? Check out the special edition of Zacks Friday Finish Line below, where Editor Maddy Johnson and Content Writer Ryan McQueeney interview Kathleen Smith of Renaissance Capital about the IPO market in 2016 (see part two here).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>