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Western Digital (WDC) to Report Q2 Earnings: What to Expect

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Western Digital (WDC - Free Report) is slated to report second-quarter fiscal 2020 results on Jan 30.

For the quarter, Western Digital expects revenues in the range of $3.8-$4 billion. The Zacks Consensus Estimate for revenues is currently pegged at $4.21 billion, almost flat with the year-ago reported figure.

Moreover, management projects non-GAAP earnings between 15 cents and 35 cents per share.

The consensus mark for earnings is pegged at 56 cents per share, suggesting a decline of 61.4% from the year-ago reported figure. Notably, estimates have remained stable in the past 30 days.

The company’s earnings missed the Zacks Consensus Estimate in two of the trailing four quarters while beating the same in the other two, with negative earnings surprise of 9.3%, on average.

Let’s see how things have shaped up for the upcoming announcement.

Western Digital Corporation Price and EPS Surprise

Western Digital Corporation Price and EPS Surprise

Western Digital Corporation price-eps-surprise | Western Digital Corporation Quote

Factors Likely to Influence Key Metrics

Softness in NAND pricing is likely to have affected Western Digital’s second-quarter performance.

In the first quarter, 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.

Notably, the company reported sequential increase in ASP that came ahead of the Zacks Consensus Estimate in three of the trailing four quarters, while matching the same once.

However, the disk drive market is highly competitive and has been experiencing drastic pricing pressure thanks to supply/demand volatility, which is likely to have weighed on the company’s HDD ASP in the to-be reported quarter.

Notably, the consensus mark for total unit shipments for the fiscal second quarter is pegged at 30.35 million at an ASP of $78.  

Moreover, the Zacks Consensus Estimate for Client Solutions revenues for the to-be-reported quarter is currently pegged at $945 million, indicating a decline of 8.5% from the year-ago reported figure.

Nonetheless, improving trend in PC shipments since fourth-quarter of 2019 is likely to have contributed to Western Digital’s Client Devices second-quarter performance.

Markedly, the Zacks Consensus Estimate for Client devices revenues for the to-be-reported quarter is currently pegged at $1.771 billion, suggesting a decline of 22.3% from the year-ago reported figure.

Strength in Product Portfolio Bodes Well

Incremental adoption of latest products with robust storage capabilities including NDME SSDs is likely to have aided the company’s second-quarter performance.

Notably, Western Digital’s SanDisk launched Smart Photo Manager, ibi capable of 1TB of storage for $129.99 during the to-be reported quarter.

Additionally, Western Digital announced shipping of high-capacity HDD samples to enterprise OEMs and hyperscale customers worldwide. These include 20TB Ultrastar DC HC650 SMR HDDs and 18TB Ultrastar DC HC550 CMR HDDs.

In the last reported quarter, Western Digital enhanced data center systems portfolio with two new NVMe SSD families, Ultrastar DC SN340 and Ultrastar DC SN640, to aid customers with robust storage capabilities and support complex workloads. This is likely to get reflected in the company’s second-quarter top-line performance.

In Data Center Devices and Solutions, capacity enterprise exabytes shipment growth was more than 60% year over year in the first quarter, led by the ramp up of 14 terabyte drives. The trend is likely to have prevailed in the to-be reported quarter.

Per management, industry analysts expect the 14 terabyte capacity point to be the industry's highest volume product through the first half of calendar year 2020.

Notably, the consensus for revenues from Data Center Devices Solutions is pegged at $1.47 billion, indicating an improvement of 37.2% from the year-ago reported figure.

Notable Developments in Q2

During the quarter under review, Western Digital completed the divestiture of its IntelliFlash business to DDN. The move is likely to aid Western Digital optimize its Data Center Systems portfolio.

Consequently, the company is likely to manage business better by shifting focus to Client Data Center Systems, finding strategic options for its ActiveScale storage-system business and selling IntelliFlash business.

What Our Model Says

According to the Zacks model, the combination of two key ingredients — a positive Earnings ESP and Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — increases the odds of a positive earnings surprise.

Western Digital has an Earnings ESP of 0.00% and a Zacks Rank #3, which makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks to Consider

Here are a couple of stocks you may want to consider, as our model shows that these have the right combination of elements to deliver an earnings beat.

Microchip Technology Incorporated (MCHP - Free Report) has an Earnings ESP of +1.33% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Splunk Inc. (SPLK - Free Report) has an Earnings ESP of +1.57% and a Zacks Rank #1.

Apple Inc. (CABO - Free Report) has an Earnings ESP of +4.08% and a Zacks Rank #2.

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