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Thursday, January 24, 2019

=Western Digital (WDC) reported earnings on Thur 24 Jan 2019 (a/h)

  • 22, 26, 55, 61, 89, 97

Western Digital misses by $0.05, reports revs in-line
  • Reports Q2 (Dec) earnings of $1.45 per share, excluding non-recurring items, $0.05 worse than the S&P Capital IQ Consensus of $1.50 and at the low end of prior guidance of $1.45-1.65; revenues fell 20.7% year/year to $4.23 bln vs the $4.26 bln S&P Capital IQ Consensus and vs prior guidance of $4.20-4.40 bln.
  • "Despite a softening business environment, our fiscal second quarter results were generally within our guidance ranges...We are taking actions to better align our cost and expense structure to near-term business conditions while continuing to deliver innovative solutions to drive our future success. We enter calendar 2019 with the strongest product portfolio in our history and confidence in our ability to capitalize on the long-term opportunities associated with data growth."

Western Digital: Earnings Preview -- Had a huge guide down last time as flash pricing fell faster than expected
Western Digital (WDC), a data storage company and a large manufacturer of hard disk drives (HDDs), is set to report 2Q19 (Dec) results today after the close (last time, they reported at 16:10, or 10 minutes after the close) with a call to follow at 5:30pm ET. Important Note on the Call: WDC typically guides for the next quarter EPS and revenue on the call.
  • The CapitalIQ consensus estimate for Q2 (Dec) non-GAAP EPS is $1.50 and for revenue it's $4.26 bln. On the October 25 call, WDC guided well below consensus to non-GAAP EPS of $1.45-1.65 (vs consensus at the time of $3.03) and revenue of $4.20-4.40 bln (vs consensus at the time of $5.22 bln). As you can see it was a BIG guide down last time.
  • So what was the deal with the huge guide down last quarter? The main issue is that flash pricing has fallen more quickly than WDC had been expecting. As for why this is happening, WDC cited trade tensions with China, changes in monetary policy, foreign exchange volatility and the corresponding economic impacts. This is causing WDC's customers to be more conservative resulting in a demand slowdown for its products. This softening demand, in combination with increased flash supply, has led to a deteriorating near-term flash pricing environment.
  • In response to these conditions, WDC made an immediate reduction to wafer starts and delayed deployment of capital equipment. These actions will reduce its wafer output beginning in Q3 (Mar). The goal of these actions is to better align output with the projected global demand for flash. The magnitude of these actions is a reduction of 10-15% of WDC's planned bit output in calendar year 2019. With these adjustments to supply, WDC expects its bit growth in calendar 2019 to be in line with its view of end market demand growth: 36-38%.
  • Beyond the flash supply dynamic, other challenges include: WDC expects to be negatively impacted by the widely publicized CPU shortage. Industry analysts have estimated the PC unit growth will be constrained between 5% to 10% for the current quarter with the situation potentially lingering into early calendar year 2019. Also, WDC is seeing a temporary slowdown in Data Center capital spending, particularly by large cloud service providers after several quarters of growth above the expected long-term exabyte growth rate of 40% for capacity enterprise. WDC is in the midst of adjusting to a more normal growth rate.
  • In sum, WDC is facing some tough market conditions right now, especially in its flash NAND market as prices are falling faster than expected. With consensus EPS near the low end of guidance, analysts are already expecting a rough DecQ result. The focus will be on WDC's forward guidance/outlook. What is the outlook for flash pricing? Has production been cut even further? Will WDC maintain its 2019 outlook for bit growth? Has the CPU shortage abated?
  • Other names to watch in this space: STX is the closest competitor, they report on Feb 4 after the close; others include: SGH, XLNX, MU.  

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