Western Digital’s Q4 Earnings Highlighted In 5 Charts

Western Digital (NASDAQ:WDC) announced its fiscal fourth quarter 2017 earnings on Thursday, July 27, reporting a 39% annual increase in net revenue to $4.8 billion. Revenue was in line with the guidance given by the company at the end of the March quarter, while the gross margin for the quarter exceeded guidance.

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1. Key Financial Metrics

• Strong revenue growth was complemented by a 10 percentage point improvement in the non-GAAP gross margin. The addition of SanDisk’s product portfolio to the company’s business has helped boost revenues as well as gross margins, given that SanDisk’s flash-based storage hardware has higher margins than WD’s hard disk products. As a result, Western Digital has observed a surge in gross margins through fiscal 2017.
• The company’s operating profit margin (non-GAAP) also increased by almost 12 percentage points to 24.5% for the quarter, driven by a limited increase in operating expenses. Expense synergies from the SanDisk acquisition were primarily responsible for restricting non-GAAP operating expenses to around WD’s targeted range of around $800 million.
• Resulting net income and earnings per share were significantly higher on a y-o-y basis, as shown below.

2. Unit Shipments

• Hard disk drive (HDD) shipments for laptops and desktops combined were down 1% y-o-y to 19.2 million units. Shipments for this segment have remained low for Western Digital and rival hard drive manufacturer Seagate (NASDAQ:STX) over the last couple of years.
• Enterprise HDD unit shipments were up 3% on a y-o-y to 6.2 million HDDs for the June quarter. Sales in this segment have been driven by robust demand for the cloud-based storage and data center storage over the last few quarters.
• Shipments for consumer electronics HDDs and branded HDDs combined were down 5% on a y-o-y basis to 13.9 million units.

3. Capacity Shipments

• WD reported a massive 36% increase in capacity shipped for datacenter and enteprise storage to 33.5 exabytes for the quarter. The company has reported a strong demand for its 10TB and 12TB Helium drives over the last few quarters.
• Comparatively, client devices and client solutions segments observed a mild exabyte growth, as shown below.

4. Revenue By Segment

• Western Digital observed significant revenue growth from the Client Devices revenue stream, which includes notebook and desktop hard drives, consumer electronics hard drives, solid state drives (SSDs) for non-enterprise customers, embedded storage and wafer sales. Combined revenues for Client Devices were up 52% to $2.4 billion, with significant growth coming from SanDisk’s client SSD product portfolio.
• The Client Solutions segment – which primarily includes products sold via the retail channel including branded HDDs, branded flash products and removable storage products (such as memory cards and USB flash drives) – reported strong growth in revenues, despite a fall in unit shipments of HDDs. Product sales were up over 50% y-o-y to $1 billion in the June quarter, with retail products driving growth.
• Datacenter and enterprise revenues were up 14% y-o-y to $1.4 billion, driven by strong demand for cloud-related storage.

5. Guidance For September Quarter

• Western Digital’s management expects revenues of around $5.1 billion for the September quarter, which is 9% higher on a y-o-y basis.
• Gross margin is expected to be around 12 percentage points higher over the year-ago period to around 41%.
• 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 could help the company achieve its expected diluted earnings per share of $3.30, which is over 100% higher over the September quarter of last year.

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