Western Digital (WDC) Q2 Earnings, Revenues Lag Estimates
Zacks Investment Research | Jan 24, 2019 11:04PM ET
Western Digital Corp. (NASDAQ:WDC) 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.
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ASP/Gigabytes (excluding non-memory products) declined 18% sequentially.
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 (NYSE:CLDR) , Marvell Technology Group Ltd. (NASDAQ:MRVL) and MeetMe (NASDAQ:MEET) , each sporting a Zacks Rank #1 (Strong Buy). You can see Zacks Investment Research
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