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Western Digital (WDC) Q4 Earnings Beat Estimates, Revenues Miss

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Western Digital Corporation WDC reported fourth-quarter fiscal 2022 non-GAAP earnings of $1.78 per share, which surpassed the Zacks Consensus Estimate by 0.6%. The bottom line decreased 17% year over year but increased 8% quarter over quarter.

Revenues of $4.53 billion missed the Zacks Consensus Estimate by 1.9%. The top line decreased 8% year over year. The decline was owing to weakness in Client and Consumer segment performance. On a sequential basis, revenues increased 3%.

In the past year, shares of Western Digital have lost 27.5% of their value compared with the industry’s decline of 14.6%.

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

Beginning first-quarter fiscal 2022, Western Digital started reporting revenues under three refined end markets — Cloud (includes products for public or private cloud), Client (includes products sold directly to OEMs or through distribution) and Consumer (includes retail and other end-user products).

Revenues from the Cloud end market (46% of total revenues) increased 5% year over year to $2.098 billion. On a sequential basis, cloud revenues were up 18%. Higher demand for 18 TB capacity drives and ramp of 20-TB drives boosted revenues of nearline products. Also, enterprise SSD revenues increased 38% year over year and doubled sequentially.

Revenues from the Client end market (36%) were down 14% year over year and declined 5% sequentially to $1.637 billion. The downtick was caused by reduced client HDD revenues on a year-over-year basis and sequential.

Revenues from the Consumer end market (18%) were down 23% year over year and 9% sequentially to $793 million. Sequential performance was affected by lower retail HDD shipments.

Considering revenues by product group, HDD revenues (47% of total revenues) decreased 14.9% year over year to $2.128 billion. The downtick was mainly caused by lower demand for client and retail HDD shipments. However, revenues declined 0.5% quarter over quarter.

Flash revenues (53%) declined 0.8% from the year-ago quarter’s figure to $2.4 billion. Sequentially, flash revenues increased 7%.

Key Metrics

The company shipped 16.5 million HDDs at an average selling price (ASP) of $120. The reported shipments declined 34.8% from the year-ago quarter’s levels.

On a quarter-over-quarter basis, HDD Exabytes sales inched up 1%. Flash exabytes sales increased 6%. Total exabytes sales (excluding non-memory products) were up 2% sequentially.

ASP/Gigabytes (excluding licensing, royalties, and non-memory products) were up 2% sequentially.

Margins

Non-GAAP gross margin of 32.3% contracted 60 basis points (bps) on a year-over-year basis.

HDD gross margin contracted 210 bps year over year to 28.2%. Flash gross margin was 35.9%, up 40 bps year over year.

Non-GAAP operating expenses moved down 4% from the year-ago quarter’s level to $760 million.

Non-GAAP operating income came in at $702 million, down 15% year over year. As a percentage of revenues, the non-GAAP operating margin was 15.5% compared with 16.8% reported in the year-ago quarter.

Balance Sheet & Cash Flow

As of Jul 1, 2022, cash and cash equivalents were $2.327 billion compared with $2.505 billion reported as of Apr 1, 2022.

The long-term debt (including the current portion) was $7.022 billion as of Jul 1, 2022, compared with $7.087 billion as of Apr 1, 2022. In the quarter under review, Western Digital repaid the debt worth $150 million.

Western Digital generated $295 million in cash from operations compared with $398 million reported in the previous quarter.

Free cash out flow came in at $97 million compared with a free cash flow of $148 million in the prior quarter.

During the quarter, the company did not pay out any dividends. On Apr 30, 2020, Western Digital suspended its dividend policy to strengthen reinvestment in innovation and growth as well as facilitate ongoing deleveraging efforts.

Q1 Guidance

For first-quarter fiscal 2023, the company expects non-GAAP revenues in the range of $3.6-$3.8 billion. The Zacks Consensus Estimate for revenues is currently pegged at $4.74 billion.

Management projects non-GAAP earnings between 35 and 65 cents per share. The Zacks Consensus Estimate for earnings is currently pegged at $1.96 per share.

Western Digital expects the non-GAAP gross margin in the range of 27.5-29.5%. Non-GAAP operating expenses are expected to be between $760 million and $780 million.

Zacks Rank & Stocks to Consider

Currently, Western Digital carries a Zacks Rank #5 (Strong Sell)

Some better-ranked stocks from the broader technology space are Cadence Design Systems CDNS, Badger Meter BMI and InterDigital IDCC. Cadence Design Systems and  Badger Meter sport a Zacks Rank #1 (Strong Buy) whereas InterDigital carries a Zacks Rank #2 (Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CDNS 2022 earnings is pegged at $4.11 per share, rising 5.7% in the past 60 days. The long-term earnings growth rate is anticipated to be 17.7%.

Cadence’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 9.8%. Shares of CDNS have jumped 22.9% in the past year.

The Zacks Consensus Estimate for BMI’s 2022 earnings is pegged at $2.30 per share, up 7% in the past 60 days.

Badger Meter’s earnings beat the Zacks Consensus Estimate in three of the preceding four quarters, with the average being 12.6%. Shares of BMI have lost 5.7% of their value in the past year.

The Zacks Consensus Estimate for InterDigital’s 2022 earnings is pegged at $2.76 per share, declining 15.9% in the past 60 days. The long-term earnings growth rate is anticipated to be 15%.

InterDigital’s earnings beat the Zacks Consensus Estimate in the last four quarters, the average being 81.9%. Shares of IDCC have declined 12.8% in the past year.


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