We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Western Digital (WDC) Q3 Earnings & Revenues Beat Estimates
Read MoreHide Full Article
Western Digital Corp. (WDC - Free Report) delivered strong third-quarter fiscal 2018 non-GAAP results. Earnings of $3.63 per share beat the Zacks Consensus Estimate by 32 cents and surged 51.9% from the year-ago quarter. However, the figure declined 8.1% sequentially.
Revenues increased 7.8% year over year to $5.01 billion and surpassed the Zacks Consensus Estimate of $4.93 billion. However, the figure declined 6.1% sequentially. The top-line growth reflected demand for the company’s high capacity enterprise hard drives and flash-based products. Increasing demand for data center devices and cloud solutions is a key catalyst.
The company has started deploying 64-layer 3D NAND technology across its product portfolio and as expected will be ramping its 96-layer technology throughout this year. Sampling of MAMR Recording Technology based capacity enterprise HD is expected to begin in second half of 2018 and the production ramp is scheduled for 2019.
The ramp of fifth-generation 14 TB helium drive is expected in the later part of 2018.
Exabyte Growth Rate to Improve
The company shipped 36.4 million HDDs at an average selling price ("ASP") of $72. The reported shipments were down from 6.9% from the year-ago quarter.
During the quarter, the company shipped an industry-leading record of 100.3 exabytes, excluding non-memory products.
Western Digital raised estimate for year-over-year industry exabyte growth rate to 75% in the first-half of calendar 2018, compared with the earlier estimate of 60%. For full year, the company now anticipates the figure to rise 65%, better than previously estimated growth of 50%. Notably, the figure was 30% in calendar 2017. However, the company anticipates the long-term exabyte growth unchanged at 40%.
Considering Datacenter Devices and Solutions segment, exabyte shipments more than doubled on a year-over-year basis from 26.5 in the third quarter 2017 to 53.3 in third quarter 2018.
Management stated that datacenter buildout by several hyperscale customers along with ongoing data explosion and increasing value of data are driving demand for high capacity enterprise drives in the high-end as well as in the mid-range.
Western Digital expects the demand for high and mid-range capacity drives and increasing capacity of smartphones to support the higher rate of exabyte consumption in calendar year 2018.
Further, the company is well poised to capitalize on exponential data growth accompanied by global increase in the number of connected devices. These are expected to grow from the present figure of 9 billion to 75 billion by 2025.
From the Flash industry perspective, Western Digital maintains its estimates for industry bit growth to be near the high-end of the long-term range (between 35% and 45%) in calendar 2018, primarily owing to continued transition to 3D flash and capability of certain companies to convert 2D NAND capacity to DRAM. The company expects to deliver growth consistent with the industry rate.
Briefing on Joint Venture Status
Management noted that joint venture (“JV”) with Toshiba Memory Corporation ("TMC") is proceeding smoothly.
In December 2017, Western Digital had settled its dispute with long-time JV partner, Toshiba, over the divestiture of TMC. The company gave consent to the transfer of Toshiba’s equity interests in the JVs to TMC. The settlement ensured long-term availability of NAND supply for Western Digital.
Joint investment in Fab 6 and Iwate office are also on track. Further, a shared memory development center was opened in Yokkaichi in March this year.
Segment Revenue Details
Client devices (46.1% of total revenues) accounted for $2.31 billion. The figure is almost in-line with the year-ago quarter. However, the segment continued to witness strong demand for embedded flash and client SSD products. Connected home, automotive, surveillance and industrial were strong growth verticals for the company’s products.
Strong sales of its 64-Layer 3D flash-based iNAND solutions and new design wins are positives.
In the mobile market, increase in average capacity in smartphones, bodes well for Western Digital’s prospects.
In the PC market, “first client SSDs based on new internal controller and firmware technologies” were announced. The company recently launched Western Digital Black 3D NVMe SSD to enhance PC gaming experience.
Client solutions (20.8% of total revenues) increased 3.9% to $1.04 billion, driven by solid adoption of G-Tech, SanDisk and WD brands.
The company secured a milestone in ramping of BiCS3, which features 64-layer 3D flash technology, as the levels tend to match levels of 2D flash technology. Management expects BiCS3 to account for “more than 70% of total bit supply”. The manufacturing ramp of 96-layer 3D Flash is in progress.
Data center devices and solutions (33.1% of total revenues) surged 25.0% to $1.66 billion on the back of strong demand for high capacity storage devices.
Western Digital has started ramping NVMe SSD Ultrastar SN200 for enterprises to select Tier 1 customers.
Robust adoption of 10 Terabyte (TB) third generation Helium drive and accelerated transition to 12 TB fueled growth.
Operating Details, Cost Improvement to Continue
Non-GAAP gross margin expanded 410 basis points (bps) on a year-over-year basis and 20 bps sequentially to 43.4%. Growth was driven by a higher mix of Flash-based revenues along with increase in capacity enterprise products.
Non-GAAP operating expenses, as a percentage of revenues, decreased 50 bps to 17.0%. GAAP Research and development (R&D) expenses as a percentage of revenues declined 120 bps to 12%. GAAP Selling, general & administrative (SG&A) expense increased 10 bps to 7.5%.
Non-GAAP operating margin also expanded 460 bps to 26.4%.
Non-GAAP effective tax rate was 6% in the quarter.
Western Digital Corporation Price, Consensus and EPS Surprise
As of Mar 30, 2018, cash and cash equivalents were $4.96 billion, down from $6.27 billion as of Dec 29, 2017. Long-term debt was $11.08 billion, down from $11.78 billion at the end of the previous quarter.
During the quarter, Western Digital generated $1.03 billion in cash from operations compared with $1.18 billion in the second-quarter fiscal 2018. Free cash flow was $616 million in the reported quarter. The company purchased shares worth $155 million.
Guidance
For fourth-quarter fiscal 2018, revenues are expected to be in the range of $5.0-$5.1 billion. The Zacks Consensus Estimate is currently pegged at $5.05 billion.
Non-GAAP gross margin is anticipated between 41% and 42%.
Non-GAAP operating expenses are expected between $840 million and $850 million. Interest and other expenses are estimated approximately at $100 million.
Management expects non-GAAP earnings between $3.40 and $3.50 per share. The mid-point ($3.45 per share) is significantly higher than the Zacks Consensus Estimate of $3.17.
For 2018, Western Digital continues to expect revenues to grow at the high end of its long-term target of 4-8% range. Non-GAAP gross margin is projected to be at least 40% for remaining quarters of 2018.
The company expects to meet or exceed its previous non-GAAP earnings outlook range of $13.50–$14.00 per share. The Zacks Consensus Estimate is currently pegged at $14.05 per share.
Zacks Rank & Other Stocks to Consider
Western Digital sports a Zacks Rank #1 (Strong Buy).
The projected earnings growth rate (3-5 years) for Western Digital, Mellanox and Micron are 15.6%, 15% and 10%, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
Image: Bigstock
Western Digital (WDC) Q3 Earnings & Revenues Beat Estimates
Western Digital Corp. (WDC - Free Report) delivered strong third-quarter fiscal 2018 non-GAAP results. Earnings of $3.63 per share beat the Zacks Consensus Estimate by 32 cents and surged 51.9% from the year-ago quarter. However, the figure declined 8.1% sequentially.
Revenues increased 7.8% year over year to $5.01 billion and surpassed the Zacks Consensus Estimate of $4.93 billion. However, the figure declined 6.1% sequentially. The top-line growth reflected demand for the company’s high capacity enterprise hard drives and flash-based products. Increasing demand for data center devices and cloud solutions is a key catalyst.
The company has started deploying 64-layer 3D NAND technology across its product portfolio and as expected will be ramping its 96-layer technology throughout this year. Sampling of MAMR Recording Technology based capacity enterprise HD is expected to begin in second half of 2018 and the production ramp is scheduled for 2019.
The ramp of fifth-generation 14 TB helium drive is expected in the later part of 2018.
Exabyte Growth Rate to Improve
The company shipped 36.4 million HDDs at an average selling price ("ASP") of $72. The reported shipments were down from 6.9% from the year-ago quarter.
During the quarter, the company shipped an industry-leading record of 100.3 exabytes, excluding non-memory products.
Western Digital raised estimate for year-over-year industry exabyte growth rate to 75% in the first-half of calendar 2018, compared with the earlier estimate of 60%. For full year, the company now anticipates the figure to rise 65%, better than previously estimated growth of 50%. Notably, the figure was 30% in calendar 2017. However, the company anticipates the long-term exabyte growth unchanged at 40%.
Considering Datacenter Devices and Solutions segment, exabyte shipments more than doubled on a year-over-year basis from 26.5 in the third quarter 2017 to 53.3 in third quarter 2018.
Management stated that datacenter buildout by several hyperscale customers along with ongoing data explosion and increasing value of data are driving demand for high capacity enterprise drives in the high-end as well as in the mid-range.
Western Digital expects the demand for high and mid-range capacity drives and increasing capacity of smartphones to support the higher rate of exabyte consumption in calendar year 2018.
Further, the company is well poised to capitalize on exponential data growth accompanied by global increase in the number of connected devices. These are expected to grow from the present figure of 9 billion to 75 billion by 2025.
From the Flash industry perspective, Western Digital maintains its estimates for industry bit growth to be near the high-end of the long-term range (between 35% and 45%) in calendar 2018, primarily owing to continued transition to 3D flash and capability of certain companies to convert 2D NAND capacity to DRAM. The company expects to deliver growth consistent with the industry rate.
Briefing on Joint Venture Status
Management noted that joint venture (“JV”) with Toshiba Memory Corporation ("TMC") is proceeding smoothly.
In December 2017, Western Digital had settled its dispute with long-time JV partner, Toshiba, over the divestiture of TMC. The company gave consent to the transfer of Toshiba’s equity interests in the JVs to TMC. The settlement ensured long-term availability of NAND supply for Western Digital.
Joint investment in Fab 6 and Iwate office are also on track. Further, a shared memory development center was opened in Yokkaichi in March this year.
Segment Revenue Details
Client devices (46.1% of total revenues) accounted for $2.31 billion. The figure is almost in-line with the year-ago quarter. However, the segment continued to witness strong demand for embedded flash and client SSD products. Connected home, automotive, surveillance and industrial were strong growth verticals for the company’s products.
Strong sales of its 64-Layer 3D flash-based iNAND solutions and new design wins are positives.
In the mobile market, increase in average capacity in smartphones, bodes well for Western Digital’s prospects.
In the PC market, “first client SSDs based on new internal controller and firmware technologies” were announced. The company recently launched Western Digital Black 3D NVMe SSD to enhance PC gaming experience.
Client solutions (20.8% of total revenues) increased 3.9% to $1.04 billion, driven by solid adoption of G-Tech, SanDisk and WD brands.
The company secured a milestone in ramping of BiCS3, which features 64-layer 3D flash technology, as the levels tend to match levels of 2D flash technology. Management expects BiCS3 to account for “more than 70% of total bit supply”. The manufacturing ramp of 96-layer 3D Flash is in progress.
Data center devices and solutions (33.1% of total revenues) surged 25.0% to $1.66 billion on the back of strong demand for high capacity storage devices.
Western Digital has started ramping NVMe SSD Ultrastar SN200 for enterprises to select Tier 1 customers.
Robust adoption of 10 Terabyte (TB) third generation Helium drive and accelerated transition to 12 TB fueled growth.
Operating Details, Cost Improvement to Continue
Non-GAAP gross margin expanded 410 basis points (bps) on a year-over-year basis and 20 bps sequentially to 43.4%. Growth was driven by a higher mix of Flash-based revenues along with increase in capacity enterprise products.
Non-GAAP operating expenses, as a percentage of revenues, decreased 50 bps to 17.0%. GAAP Research and development (R&D) expenses as a percentage of revenues declined 120 bps to 12%. GAAP Selling, general & administrative (SG&A) expense increased 10 bps to 7.5%.
Non-GAAP operating margin also expanded 460 bps to 26.4%.
Non-GAAP effective tax rate was 6% in the quarter.
Western Digital Corporation Price, Consensus and EPS Surprise
Western Digital Corporation Price, Consensus and EPS Surprise | Western Digital Corporation Quote
Balance Sheet & Cash Flow
As of Mar 30, 2018, cash and cash equivalents were $4.96 billion, down from $6.27 billion as of Dec 29, 2017. Long-term debt was $11.08 billion, down from $11.78 billion at the end of the previous quarter.
During the quarter, Western Digital generated $1.03 billion in cash from operations compared with $1.18 billion in the second-quarter fiscal 2018. Free cash flow was $616 million in the reported quarter. The company purchased shares worth $155 million.
Guidance
For fourth-quarter fiscal 2018, revenues are expected to be in the range of $5.0-$5.1 billion. The Zacks Consensus Estimate is currently pegged at $5.05 billion.
Non-GAAP gross margin is anticipated between 41% and 42%.
Non-GAAP operating expenses are expected between $840 million and $850 million. Interest and other expenses are estimated approximately at $100 million.
Management expects non-GAAP earnings between $3.40 and $3.50 per share. The mid-point ($3.45 per share) is significantly higher than the Zacks Consensus Estimate of $3.17.
For 2018, Western Digital continues to expect revenues to grow at the high end of its long-term target of 4-8% range. Non-GAAP gross margin is projected to be at least 40% for remaining quarters of 2018.
The company expects to meet or exceed its previous non-GAAP earnings outlook range of $13.50–$14.00 per share. The Zacks Consensus Estimate is currently pegged at $14.05 per share.
Zacks Rank & Other Stocks to Consider
Western Digital sports a Zacks Rank #1 (Strong Buy).
Other top-ranked stocks in the broader technology sector are Seagate Technology PLC (STX - Free Report) , Mellanox and Micron (MU - Free Report) , each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.
The projected earnings growth rate (3-5 years) for Western Digital, Mellanox and Micron are 15.6%, 15% and 10%, respectively.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>