Western Digital's (WDC) Q1 Earnings & Revenues Beat Estimates

Zacks Equity Research
·6 min read

Western Digital Corporation WDC reported first-quarter fiscal 2021 non-GAAP earnings of 65 cents per share, which surpassed the Zacks Consensus Estimate by 20.4%. Further, the bottom line surged 91.2% year over year. Following the announcement, shares of Western Digital were up 1.8% in the before-market hours on Oct 29.

Revenues of $3.922 billion beat the Zacks Consensus Estimate by 2.32%. However, the top line declined 3% year over year. Deterioration in the Data Center Devices and Solutions’ and Client Solutions segments’ revenues offset growth in the Client Devices segment.

Management also announced the appointment of Ashley Gorakhpurwalla as the executive vice president and general manager of HDD business unit. In September 2020, Western Digital had announced the splitting of its flash and HDD business in two separate segments as a part of its diversification strategy to streamline operations and unlock shareholders’ value. The company had named Rob Soderbery as executive vice president and general manager of the Flash business unit.

Western Digital Corporation Price, Consensus and EPS Surprise

 

Western Digital Corporation Price, Consensus and EPS Surprise
Western Digital Corporation Price, Consensus and EPS Surprise

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

 

Quarter in Detail

Client devices’ revenues (49.6% of total revenues) increased 20% year over year and 2% sequentially to $1.946 billion, driven by solid revenues from gaming SSDs and increased demand for SSDs in smart video and mobile flash solutions.

In gaming domain, the company benefitted from shipping of flash solutions for the forthcoming console launches.

Moreover, the company witnessed increased demand for notebook SSD 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 notebooks hard drives limited segment growth.

Client solutions’ revenues (21.6%) declined 5% year over year to $847 million. However, the figure increased 23% sequentially as retail demand continued to pick up at brick-and-mortar stores along with higher curbside pickup facilities cushioned the online demand.

Data center devices and solutions’ revenues (28.8%) declined 26% year over year to $1.129 million and 33% sequentially owing to weak demand for Enterprise SSDs and capacity enterprise hard drives.

Considering revenues by product group, HDD revenues (47% of total revenues) declined 23% from the year-ago quarter’s level and 10% on a sequential basis to $1.844 billion, owing to ongoing transition to SSDs. Flash revenues (53%) improved 27% from the year-ago quarter’s figure to $2.078 billion, driven by an uptrend in gaming flash solutions and mobile flash solutions. Sequentially, flash revenues declined 7%. Gaming segment represented 10% of total flash revenues in the quarter under review.

Going ahead, robust demand for its high capacity drives and ramping production of 16 and 18-terabyte energy assisted drives are expected to drive the top line. Notably, the company achieved its goal of producing 1-million energy assisted drives in the fiscal first quarter of 2021. The company announced that it has started shipping 20 terabyte products to its customers in the fiscal first quarter.

The company is also optimistic about its gaming SSDs including the recently introduced WD Black SN850.

Key Metrics

The company shipped 23 million HDDs at an average selling price (ASP) of $79. The reported shipments were lower than the year-ago quarter’s figure by 21.5%.

On a quarter-over-quarter basis, HDD Exabytes sales declined 7%. Flash exabytes sales increased 1%. Total exabytes sales (excluding non-memory products) were down 6% sequentially.

ASP/Gigabytes (excluding non-memory products) declined 9% sequentially.

Margins

Non-GAAP gross margin of 26.3% expanded 150 basis points (bps) on a year-over-year basis.

Notably, non-GAAP flash gross margin was 26.4%, up 710 bps from the year-ago quarter figure, driven by cost reduction measures. Meanwhile, non-GAAP HDD gross margin contracted 230 bps year over year to 26.2% due to increases in costs associated with the ramping up of next generation energy assisted hard drives and higher COVID-19 related costs.

Non-GAAP operating expenses declined 7.7% from the year-ago quarter to $708 million. Management remains focused on undertaking strict spending measures.

Non-GAAP operating income came in at $323 million, which soared 37.4% year over year. As a percentage of revenues, non-GAAP operating margin of 8.2% expanded 240 bps on a year-over-year basis.

Balance Sheet & Cash Flow

As of Oct 2, 2020, cash and cash equivalents were $2.995 billion, compared with $3.048 billion reported as of Jul 3, 2020.

Long-term debt (including current portion) was $9.372 billion as of Oct 2, 2020, compared with $9.575 billion as of Jul 3, 2020. The company paid down debt of $213 million in the fiscal first quarter.

Western Digital generated $363 million in cash from operations compared with $172 million reported in the previous quarter.

Free cash flow came in at $196 million compared with $261 million in the prior quarter.

During the quarter, the company did not pay any dividends. On Apr 30, Western Digital suspended its dividend policy to strengthen reinvestment in innovation and growth as well as to facilitate ongoing deleveraging efforts.

Guidance

For second-quarter fiscal 2021, revenues are expected in the range of $3.75-$3.95 billion. The Zacks Consensus Estimate for revenues is currently pegged at $3.99 billion. Management projects non-GAAP earnings between 40 cents and 60 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at 57 cents.

For second-quarter fiscal 2021, non-GAAP gross margin is anticipated in the range of 24-26%.

Non-GAAP operating expenses are expected between $680 million and $700 million. Interest and other expenses are estimated between $70 million and $75 million.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Qorvo QRVO, Skyworks SWKS and Everbridge EVBG. While Qorvo sports a Zacks Rank #1 (Strong Buy), both Skyworks and Everbridge carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Skyworks is set to release quarterly results on Nov 2, while Qorvo and Everbridge is scheduled to report earnings on Nov 4 and Nov 5, respectively.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by referendums and legislation, this industry is expected to blast from an already robust $17.7 billion in 2019 to a staggering $73.6 billion by 2027. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot stocks we're targeting >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Skyworks Solutions, Inc. (SWKS) : Free Stock Analysis Report
 
Western Digital Corporation (WDC) : Free Stock Analysis Report
 
Qorvo, Inc. (QRVO) : Free Stock Analysis Report
 
Everbridge, Inc. (EVBG) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research