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Western Digital (WDC) Posts Q2 Loss, Tops Revenue Estimates
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Western Digital Corporation (WDC - Free Report) reported second-quarter fiscal 2024 non-GAAP loss of 69 cents per share, narrower than the Zacks Consensus Estimate of a loss of $1.13. The company reported a loss of 42 cents in the prior-year quarter.
Management anticipated fiscal second-quarter non-GAAP loss per share to be between $1.05 and $1.35.
Revenues of $3.032 billion beat the Zacks Consensus Estimate by 1.6%. However, the top line decreased 2% year over year owing to weak performance across Cloud end markets. On a sequential basis, revenues increased 10%.
Western Digital Corporation Price and EPS Surprise
For second-quarter fiscal 2024, the company expected non-GAAP revenues in the range of $2.85-$3.05 billion.
Following the announcement, shares of WDC fell 5% in the after-market trading on Jan 25. In the past year, shares have gained 34.2% compared with sub-industry’s growth of 80.8%.
Image Source: Zacks Investment Research
Quarter in Detail
At the beginning of 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 (35% of total revenues) fell 13% year over year to $1,071 million owing to reduced eSSD bit shipments. On a sequential basis, cloud revenues were up 23%. The sequential improvement was driven by higher nearline shipments to data center clients and improved nearline pricing.
Revenues from the Client end market (37%) were up 3% year over year to $1,122 million. The uptick was due to higher flash shipments, mainly driven by client solid state drive or SSD shipments into PC applications. Client revenues decreased 2% sequentially owing to a decline in flash bit shipments.
Revenues from the Consumer end market (28%) were up 6% year over year to $839 million. The year-over-year growth was driven by an increase in flash bit shipments which offset a decline in flash ASPs and lower hard disk drive (HDD) shipments. Revenues increased 15% on a sequential basis. Sequential performance benefited from seasonal momentum in flash bit shipments.
Considering revenues by product group, Flash revenues (54.9% of total revenues) was up 0.5% year over year to $1.665 billion. Sequentially, flash revenues rose 7%.
HDD revenues (45.1%) decreased 6% year over year to $1.367 billion. Revenues increased 14% quarter over quarter.
In the first quarter of fiscal 2024, the company had announced that it plans to separate its HDD and Flash businesses and create two independent and public companies. The separation is likely to be structured in a tax-free manner and is scheduled for the second half of 2024.
Key Metrics
The company shipped 10.8 million HDDs at an average selling price (ASP) of $122. The reported shipments declined 16.3% year over year.
Total exabytes sales (excluding licensing, royalties and non-memory products) grew 10% sequentially. On a quarter-over-quarter basis, HDD Exabytes sales increased 14%. Flash exabytes sales were down 2%.
ASP/Gigabytes (excluding licensing, royalties and non-memory products) were up 10% sequentially.
Margins
Non-GAAP gross margin was 15.5% compared with 17.4% in the year-ago quarter.
HDD’s gross margin expanded 410 bps year over year to 24.8%. Flash gross margin came in at 7.9% compared with 14.5% in the prior-year quarter.
Non-GAAP operating expenses declined 15% year over year to $561 million.
Non-GAAP operating loss totaled $91 million against the non-GAAP operating loss $119 million in the prior-year quarter. Operating loss included underutilization charges of $156 million.
Balance Sheet & Cash Flow
As of Dec 29, 2023, cash and cash equivalents were $2.481 billion compared with $2.03 billion as of Sep 29, 2023.
Long-term debt (including the current portion) was $7.351 billion as of Dec 29. Western Digital used $92 million in cash from operations in the reported quarter.It generated $35 million of cash from operations in the prior-year quarter.
Free cash outflow amounted to $176 million in the quarter under review compared with the free cash outflow of $240 million reported in the prior-year quarter.
Fiscal Q3 Guidance
The company expects non-GAAP revenues in the range of $3.2-$3.4 billion. The Zacks Consensus Estimate is currently pegged at $3.32 billion.
Management projects non-GAAP earnings per share in the range of a loss of 10 cents to earnings of 20 cents. The Zacks Consensus Estimate is currently pegged at a loss of 17 cents.
WDC expects non-GAAP gross margin in the range of 22-24%. Non-GAAP operating expenses are expected to be between $600 million and $620 million.
Zacks Rank
Currently, Western Digital carries a Zacks Rank #2 (Buy).
The Zacks Consensus Estimate for Watts Water Technologies’ 2023 EPS has improved by 1% in the past 60 days to $8.08. WTS’ earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 11.8%. Shares of WTS have jumped 25.1% in the past year.
The Zacks Consensus Estimate for 2023 is pegged at a loss of 9 cents per share for NETGEAR, which remained unchanged in the past 30 days. NTGR’s earnings outpaced the Zacks Consensus Estimate in three of the last four quarters while missing once. The average surprise was 127.5%. Shares of NTGR were down 25.4% in the past year.
The Zacks Consensus Estimate for Blackbaud’s 2023 EPS has improved by 1% in the past 60 days to $3.86. BLKB’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 10.6%. Shares of BLKB have gained 36% in the past year.
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Western Digital (WDC) Posts Q2 Loss, Tops Revenue Estimates
Western Digital Corporation (WDC - Free Report) reported second-quarter fiscal 2024 non-GAAP loss of 69 cents per share, narrower than the Zacks Consensus Estimate of a loss of $1.13. The company reported a loss of 42 cents in the prior-year quarter.
Management anticipated fiscal second-quarter non-GAAP loss per share to be between $1.05 and $1.35.
Revenues of $3.032 billion beat the Zacks Consensus Estimate by 1.6%. However, the top line decreased 2% year over year owing to weak performance across Cloud end markets. On a sequential basis, revenues increased 10%.
Western Digital Corporation Price and EPS Surprise
Western Digital Corporation price-eps-surprise | Western Digital Corporation Quote
For second-quarter fiscal 2024, the company expected non-GAAP revenues in the range of $2.85-$3.05 billion.
Following the announcement, shares of WDC fell 5% in the after-market trading on Jan 25. In the past year, shares have gained 34.2% compared with sub-industry’s growth of 80.8%.
Image Source: Zacks Investment Research
Quarter in Detail
At the beginning of 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 (35% of total revenues) fell 13% year over year to $1,071 million owing to reduced eSSD bit shipments. On a sequential basis, cloud revenues were up 23%. The sequential improvement was driven by higher nearline shipments to data center clients and improved nearline pricing.
Revenues from the Client end market (37%) were up 3% year over year to $1,122 million. The uptick was due to higher flash shipments, mainly driven by client solid state drive or SSD shipments into PC applications. Client revenues decreased 2% sequentially owing to a decline in flash bit shipments.
Revenues from the Consumer end market (28%) were up 6% year over year to $839 million. The year-over-year growth was driven by an increase in flash bit shipments which offset a decline in flash ASPs and lower hard disk drive (HDD) shipments. Revenues increased 15% on a sequential basis. Sequential performance benefited from seasonal momentum in flash bit shipments.
Considering revenues by product group, Flash revenues (54.9% of total revenues) was up 0.5% year over year to $1.665 billion. Sequentially, flash revenues rose 7%.
HDD revenues (45.1%) decreased 6% year over year to $1.367 billion. Revenues increased 14% quarter over quarter.
In the first quarter of fiscal 2024, the company had announced that it plans to separate its HDD and Flash businesses and create two independent and public companies. The separation is likely to be structured in a tax-free manner and is scheduled for the second half of 2024.
Key Metrics
The company shipped 10.8 million HDDs at an average selling price (ASP) of $122. The reported shipments declined 16.3% year over year.
Total exabytes sales (excluding licensing, royalties and non-memory products) grew 10% sequentially. On a quarter-over-quarter basis, HDD Exabytes sales increased 14%. Flash exabytes sales were down 2%.
ASP/Gigabytes (excluding licensing, royalties and non-memory products) were up 10% sequentially.
Margins
Non-GAAP gross margin was 15.5% compared with 17.4% in the year-ago quarter.
HDD’s gross margin expanded 410 bps year over year to 24.8%. Flash gross margin came in at 7.9% compared with 14.5% in the prior-year quarter.
Non-GAAP operating expenses declined 15% year over year to $561 million.
Non-GAAP operating loss totaled $91 million against the non-GAAP operating loss $119 million in the prior-year quarter. Operating loss included underutilization charges of $156 million.
Balance Sheet & Cash Flow
As of Dec 29, 2023, cash and cash equivalents were $2.481 billion compared with $2.03 billion as of Sep 29, 2023.
Long-term debt (including the current portion) was $7.351 billion as of Dec 29.
Western Digital used $92 million in cash from operations in the reported quarter.It generated $35 million of cash from operations in the prior-year quarter.
Free cash outflow amounted to $176 million in the quarter under review compared with the free cash outflow of $240 million reported in the prior-year quarter.
Fiscal Q3 Guidance
The company expects non-GAAP revenues in the range of $3.2-$3.4 billion. The Zacks Consensus Estimate is currently pegged at $3.32 billion.
Management projects non-GAAP earnings per share in the range of a loss of 10 cents to earnings of 20 cents. The Zacks Consensus Estimate is currently pegged at a loss of 17 cents.
WDC expects non-GAAP gross margin in the range of 22-24%. Non-GAAP operating expenses are expected to be between $600 million and $620 million.
Zacks Rank
Currently, Western Digital carries a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other stocks worth consideration in the broader technology space are Watts Water Technologies (WTS - Free Report) , NETGEAR (NTGR - Free Report) and Blackbaud (BLKB - Free Report) . While NETGEAR currently sports a Zacks Rank #1 (Strong Buy), Watts Water and Blackbaud carry a Zacks Rank of 2 each. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Watts Water Technologies’ 2023 EPS has improved by 1% in the past 60 days to $8.08. WTS’ earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 11.8%. Shares of WTS have jumped 25.1% in the past year.
The Zacks Consensus Estimate for 2023 is pegged at a loss of 9 cents per share for NETGEAR, which remained unchanged in the past 30 days. NTGR’s earnings outpaced the Zacks Consensus Estimate in three of the last four quarters while missing once. The average surprise was 127.5%. Shares of NTGR were down 25.4% in the past year.
The Zacks Consensus Estimate for Blackbaud’s 2023 EPS has improved by 1% in the past 60 days to $3.86. BLKB’s earnings surpassed the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 10.6%. Shares of BLKB have gained 36% in the past year.