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Western Digital (WDC) Q4 Earnings Top Estimates, Revenues Lag

Zacks Equity Research

Western Digital Corporation WDC delivered fourth-quarter fiscal 2019 non-GAAP earnings of 17 cents per share, which beat the Zacks Consensus Estimate by a penny. However, the figure declined from earnings of $3.61 reported in the year-ago quarter.

Revenues of $3.634 billion missed the Zacks Consensus Estimate of $3.690 billion. Further, the figure declined 28.9% year over year and 1.1% sequentially.

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

Following the mixed fourth-quarter results, shares of the company went down more than 4%, yesterday. Moreover, both earnings and revenues declined year over year, which impacted the price movement.

Western Digital Corporation Revenue (Quarterly)

 

Western Digital Corporation Revenue (Quarterly)

Western Digital Corporation revenue-quarterly | Western Digital Corporation Quote

Segment Revenue Details

Client devices (44.2% of total revenues) declined 35.1% year over year and came in at $1.606 billion. The figure was down 1.2% 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 (20.8%) slumped 26.8% year over year to $755 million. The figure declined 6.1% sequentially.

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

However, management is banking on growth in average capacity per unit of flash devices, which improved 36% on a year-over-year basis in the reported quarter.

Data center devices and solutions (35%) slumped 21% year over year to $1.273 billion, owing to weakness in end-market. However, the figure was up 2% sequentially, driven by rising demand witnessed for capacity enterprise drives.

Other Metrics

The company shipped 27.7 million HDDs at an average selling price (ASP) of $75. The reported shipments were lower than the year-ago figure of 39 million.

On quarter-over-quarter basis, HDD Exabytes shipments improved 14% and Flash exabytes shipments declined 1%. Total exabytes sales (excluding non-memory products) advanced 12% sequentially.

Considering revenues by product group, HDD revenues (58.6% of total revenues) declined 22.7% from the year-ago quarter to reach $2.128 billion. Flash revenues (41.4%) fell 36.3% from the year-ago quarter to reach $1.506 billion.

ASP/Gigabytes (excluding non-memory products) declined 6% sequentially.

Margins Impacted by Declining Flash Prices

Non-GAAP gross margin of 24.2% declined from the year-ago figure of 41% and contracted 110 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% and 19%, compared with 32% and 51% reported in the year-ago quarters, respectively.

Non-GAAP operating expenses declined 11.9% from the year-ago quarter to $722 million. Management remains focused on undertaking strict spending measures.

Non-GAAP operating income came in at $158 million, compared with the year-ago figure of $1.277 billion.

The company reported non-GAAP operating margin of 4.3% in the quarter, which declined from the year-ago figure of 24.9% and contracted 80 bps on a sequential basis.

Balance Sheet & Cash Flow Portray a Dismal Picture

As of Jun 28, 2019, cash and cash equivalents were $3.455 billion, down from $3.682 billion reported at the end of the previous quarter.

Total debt (including current portion) was $10.52 billion, down from $10.59 billion at the end of the previous quarter.

Western Digital generated $169 million in cash from operations compared with $204 million reported in the previous quarter.

Free cash flow came in at ($179 million) compared with ($110) million in the prior quarter.

During the quarter, the company paid out dividends worth $146 million. On May 2, 2019, Western Digital’s board of directors approved a cash dividend of 50 cents per share payable Jul 15, 2019.

Guidance

For first-quarter fiscal 2020, revenues are expected to be in the range of $3.8-$4 billion (mid-point of $3.9 billion). The mid-point of the guided range is almost in line with the Zacks Consensus Estimate, currently pegged at $3.93 billion.

Non-GAAP gross margin is anticipated to come in at 24-25%.

Non-GAAP operating expenses are expected between $750 million and $770 million. Interest and other expenses are estimated approximately at $95 million.

Management projects non-GAAP earnings between 15 cents and 35 cents per share. The Zacks Consensus Estimate for earnings currently stands at 32 cents.

Western Digital anticipates industry exabyte growth rate in capacity enterprise to witness improvement of 30% year over year in 2019.

From the Flash industry perspective, Western Digital revised estimates for supply growth at around low 20% range in calendar 2019 compared with previous estimated growth of more than 30%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader technology sector are Rosetta Stone RST, Alteryx, Inc. AYX and Nikon Corp. NINOY, each flaunting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rosetta, Alteryx and Nikon have a long-term earnings growth rate of 12.5%, 13.7% and 1%, respectively.

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