Western Digital To Report First Full Quarter Earnings Post SanDisk Acquisition

+7.19%
Upside
59.31
Market
63.57
Trefis
WDC: Western Digital logo
WDC
Western Digital

Hard disk drive manufacturer Western Digital (NASDAQ:WDC) is scheduled to announce its fiscal first quarter 2017 earnings on Wednesday, October 26th. [1] (Fiscal years end with June.)  The company has reported a 6% annual decline in revenues to $6.3 billion for the March and June quarters combined. The revenue decline was driven be weakness in the “compute segment”, which includes hard drives for notebooks and desktops. While this trend is expected to continue through the end of the year, Western Digital is expected to post solid revenue growth in the coming quarters owing to the SanDisk acquisition, which was completed in May. The September quarter will be the first full quarter with SanDisk’s results included in the earnings.

In terms of margins, Western Digital has posted lower margins over the first two quarters of the year thus far, driven by pricing pressure on hardware sold by the company. In addition to lower gross margins, the company has also observed a surge in operating expenses including R&D, SG&A and employee termination costs in the most recent quarter, which led to an operating loss for the company through the June quarter. Western Digital’s operating expenses were up by over 30% through the March quarter and June quarter combined to almost $1.7 billion as shown below.

wdc_q1ep2

Relevant Articles
  1. Should You Pick Western Digital Stock At $65 After 25% Gains This Year?
  2. After Rising Over 30% In 2023 Is This Casino Stock A Better Pick Over Western Digital Stock?
  3. Which Is A Better Pick – Western Digital Stock Or Expedia?
  4. Will Western Digital Stock Rebound To Its Pre-Inflation Shock Highs?
  5. Will Western Digital Stock See Higher Levels After A 20% Rise This Year?
  6. Western Digital Stock Set For Bounce After Weak Post-Earnings Performance?

Western Digital released its preliminary results last month, with revenues for Q1’17 expected to be up 34% on a year-over-year basis to $4.5 billion. Moreover, a favorable mix of high-margin flash storage products from SanDisk sold through the quarter should help improve the company-wide gross margin to 33%. [2]

wdc_q1ep1

On the other hand, Western Digital’s operating expenses are also expected to surge on a year-over-year basis due to SanDisk’s corresponding operating expenses. Management has indicated that operating expenses for the quarter could surge by almost 60% year over year to $905 million. As a result of high operating expenses, Western Digital could report an earnings per share of only about $1.00 to $1.05 for the quarter, over 30% lower than the year ago period.

Unit Shipments Suppressed In 2016 Thus Far

Western Digital’s unit shipments across all divisions were uniformly down on a year-over-year basis as shown in the table below. Western Digital has witnessed weakness in notebook and desktop hard drives sales for the last few quarters, driving the overall decline in unit shipments. However, the company’s “non-compute” product sales have also suffered in the year thus far, with the enterprise segment taking a steep dip in unit shipments. [3] This division is likely to be bolstered by SanDisk’s enterprise SSD offerings in the long run.

wdc_q1ep3

See our complete analysis for Western Digital

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Western Digital Sets October 26 for Q1 Fiscal 2017 Financial Results Conference Call/Webcast, Western Digital Press Release, October 2016 []
  2. Western Digital Updates First Fiscal Quarter Expectations, Western Digital Press Release, September 2016 []
  3. Western Digital Q4 FY 2016 Earnings Call Transcript, Seeking Alpha, July 2016 []