Western Digital Earnings Preview: Margins To Improve Due To SanDisk’s Flash Products
Western Digital (NASDAQ:WDC) is scheduled to announce its fiscal fourth quarter 2017 earnings on July 27. At the end of the quarter ended March, Western Digital gave positive guidance for the fiscal fourth quarter with the addition of SanDisk expected to boost revenues for the hard drive manufacturer. In addition, gross margins are expected to continue to rise significantly, as SanDisk’s flash product portfolio has higher gross margins than Western Digital’s core hard drive products.
Other key developments during the quarter included the company’s standoff with SanDisk’s partner Toshiba, which sued Western Digital for ¥ 120 billion (around $1 billion) for allegedly “unfair competition and theft of trade secrets”. Back in 2014, SanDisk and Toshiba announced their joint decision to produce 3D chips on a mass scale. Western Digital remains committed to continuing to invest in the fab facilities and maintains its stance that the company is still entitled to the 50% share of the joint venture’s output.
We have a $75 price estimate for Western Digital’s stock, which is around 20% lower than the current market price. Western Digital’s stock price has surged from $40 in July last year to over $90 currently, with shareholders reacting positively following the company’s robust results following the SanDisk acquisition.
- Should You Pick Western Digital Stock At $65 After 25% Gains This Year?
- After Rising Over 30% In 2023 Is This Casino Stock A Better Pick Over Western Digital Stock?
- Which Is A Better Pick – Western Digital Stock Or Expedia?
- Will Western Digital Stock Rebound To Its Pre-Inflation Shock Highs?
- Will Western Digital Stock See Higher Levels After A 20% Rise This Year?
- Western Digital Stock Set For Bounce After Weak Post-Earnings Performance?
See Our Full Analysis For Western Digital’s stock
Guidance For June Quarter
Western Digital’s management expects revenues of around $4.8 billion for the June quarter. According to management, revenue growth is significant (double digit) even on a pro forma basis. The gross margin is expected to be around 9 percentage points higher over the year-ago period at around 40%.
Moreover, the company expects non-GAAP operating expenses to be flat sequentially at around $810 million due continued expense synergies with the integration of SanDisk. Disciplined expense management, higher revenues and healthier gross margins should help the company achieve its expected diluted earnings per share of $2.60, which is almost 230% higher on a year-over-year basis.
Similarly, rival hard drive manufacturer Seagate (NASDAQ:STX) has also made efforts to lower its operating expenses by reducing its global workforce by 6,500 employees or 14% of its total global workforce.
Segment Performance Metrics
Western Digital and Seagate have witnessed a slowdown in demand for hard drive sales over the last couple of years. This trend has continued in 2017 as well, with Western Digital’s unit shipments across most segments declining over the comparable prior year period. Enterprise HDD unit shipments continued to be lower on a y-o-y basis, as shown below. This trend has continued for a few quarters. In terms of revenue, datacenter and enterprise revenues were up 7% y-o-y to $1.3 billion. We forecast segment revenues to be drive by enterprise SSD sales in the coming years.
View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research