Western Digital Corporation (NASDAQ:WDC), a leading provider of electronic data storage products such as hard disk drives (HDDs) for personal storage and enterprise applications, will announce its Q3 fiscal 2013 earnings on April 24. On a year-over-year basis, we expect the storage company to maintain double digit growth as total storage demand is rising despite a slowdown in PC and notebook sales. However, on a sequential basis, revenues are expected to decline due to a seasonally weak quarter. Operating margins should remain under pressure due to rising costs, and the average selling prices are expected to decline. Below we discuss the major trends for the quarter in detail.
Declining PC Sales Will Hurt, But Soaring Tablet Sales And External Drives Will Lend Support
With the earnings of leading PC microprocessor manufacturer Intel (NASDAQ:INTC) suggesting that desktop and laptop sales continued to remain weak in the first quarter of 2013 (Read Intel Holds Its Ground Despite Dismal PC Sales), we expect Western Digital’s HDD shipments within the PC, Tablet & Laptop Storage segment to decline. Consumer softness in mature markets (the U.S. and Western Europe), slowing demand from emerging markets and IT spending cuts amid a weak macro environment have been weighing on PC sales. The cannibalization by tablets and smartphones are also aiding the decline in the PC market. Further, a continued inventory rebalancing by OEM customers may also weigh on its growth in Q3.
However, what can help the storage company is that tablet sales continued to remain strong during the quarter, which will drive growth for Western Digital’s SSDs. Further, the increasing demand for high definition (HD) content for media consumption and rich formats such as HD DVD and Blu-Ray continue to drive demand for high capacity disk drive solutions in the end-user market. More consumers are turning to external drives to increase their existing storage capacities to create and share HD content. Further, tablets with USB ports are leading to greater adoption of external drives for additional storage capacity.
Enterprise Business To Ride Growth In Cloud Computing And Remote Storage Services
We expect Western Digital’s enterprise business to exhibit strong growth as more businesses deploy cloud computing environments to pool resources and cut costs. Remote storage is becoming a standard for most enterprises and has even gained traction with retail customers with services like iCloud, Dropbox, Skydrive and Google Drive. Tablet and smartphone users are also growing more dependent on network attached storage. Further, the growth in digital content like online video streaming, email, and music are driving storage requirements.
Western Digital’s new and innovative 7 disk helium-filled drives, which are more energy efficient, have been gaining strong traction from enterprises. Further, Western Digital has been expanding its portfolio of enterprise class SSDs. With increasing acceptance, we expect the storage company to maintain double-digit revenue growth in its SSD enterprise segment for the fourth consecutive quarter.