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Western Digital (WDC) Q1 Earnings & Revenues Top Estimates

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Western Digital Corporation (WDC - Free Report) reported first-quarter fiscal 2020 non-GAAP earnings of 34 cents per share, which beat the Zacks Consensus Estimate of 27 cents. However, the figure declined from earnings of $3.04 reported in the year-ago quarter.

Revenues of $4.040 billion surpassed the Zacks Consensus Estimate of $3.938 billion and improved 11% sequentially. However, the figure declined 20% year over year.

Uncertain macroeconomic environment and softness in NAND flash pricing trends adversely impacted year-over-year results. Moreover, decline in the client HDD and flash mobile applications affected revenues.

Segment Revenue Details

Client devices (40% of total revenues) declined 39% year over year and came in at $1.616 billion. The figure was up 1% sequentially. Sluggish demand across smartphone negatively impacted mobile embedded results. Meanwhile, management noted that decline in revenues from Client HDD and softness in flash pricing hurt the segment results.

Client solutions (22.1%) slumped 4% year over year to $892 million, primarily due to decline in hard drive TAM. However, the figure increased 18% sequentially.

Notably, the company continues to bear the brunt of unfavorable NAND flash pricing, which is currently on the decline thanks to oversupply and weaker-than-expected growth in end-market demand.

Data center devices and solutions (37.9%) improved 6% year over year to $1.532 billion, driven by rising demand witnessed for capacity enterprise drives. Moreover, the figure was up 20% sequentially.

Other Metrics

The company shipped 29.3 million HDDs at an average selling price (ASP) of $81. The reported shipments were lower than the year-ago figure of 34.1 million.

On quarter-over-quarter basis, HDD Exabytes shipments improved 23% and Flash exabytes shipments increased 9%. Total exabytes sales (excluding non-memory products) advanced 22% sequentially.

Considering revenues by product group, HDD revenues (59.6% of total revenues) declined 3.4% from the year-ago quarter to reach $2.408 billion. Flash revenues (40.4%) fell 35.6% from the year-ago quarter to reach $1.632 billion.

ASP/Gigabytes (excluding non-memory products) was flat sequentially.

Margins

Non-GAAP gross margin of 24.8% declined from the year-ago figure of 38% but expanded 60 bps sequentially.

The year-over-year decline can be attributed to softness in Flash pricing. Notably, non-GAAP HDD and Flash gross margins came in at 28.5% and 19.3%, compared with 32.1% and 43.8% reported in the year-ago quarter, respectively.

Non-GAAP operating expenses declined 6.5% from the year-ago quarter to $767 million. Management remains focused on undertaking strict spending measures.

Non-GAAP operating income came in at $235 million, compared with the year-ago figure of $1.091 billion.

The company reported non-GAAP operating margin of 5.8% in the quarter, which declined from the year-ago figure of 21.7%.

Balance Sheet & Cash Flow

As of Oct 4, 2019, cash and cash equivalents were $3.248 billion, down from $3.455 billion reported at the end of the previous quarter.

Total debt (including current portion) was $10.21 billion, down from $10.52 billion at the end of the previous quarter.

Western Digital generated $253 million in cash from operations compared with $169 million reported in the previous quarter.

Free cash flow came in at $294 million compared with ($179) million in the prior quarter.

During the quarter, the company paid out dividends worth $147 million. On Aug 7, 2019, Western Digital’s board of directors approved a cash dividend of 50 cents per share payable Oct 22, 2019.

Guidance

For second-quarter fiscal 2020, revenues are expected to be in the range of $4.1-$4.3 billion (mid-point of $4.2 billion). The Zacks Consensus Estimate for revenues currently stands at $4.24 billion.

Non-GAAP gross margin is anticipated to come in at 25-26%.

Non-GAAP operating expenses are expected between $750 million and $770 million. Interest and other expenses are estimated approximately at $85 million.

Management projects non-GAAP earnings between 45 cents and 65 cents per share. The Zacks Consensus Estimate for earnings currently stands at 68 cents.

From the Flash industry perspective, Western Digital revised estimates for bit supply growth at around low to 30% range in calendar 2020.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Vonage Holdings Corp. (VG - Free Report) , Hewlett Packard Enterprise Company (HPE - Free Report) and Taiwan Semiconductor Manufacturing Company Ltd. (TSM - Free Report) . Each of the stocks flaunts 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 Vonage, Hewlett Packard Enterprise and Taiwan Semiconductor is currently pegged at 5%, 7.4% and 10.4%, respectively.

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