How Will Western Digital Perform In Its Fourth Quarter?

Western Digital (NASDAQ: WDC), one of the largest providers of data storage devices and solutions, has delivered strong results in recent years, with earnings beating market expectations more often than not. The company is scheduled to announce fourth-quarter earnings on July 26, and we expect it to report another robust quarter, driven mainly by growth in the Client Devices and Data Center Devices & Solutions businesses. We expect Western Digital to report earnings of about $3.66 per share on revenues of $5.1 billion for the quarter, based on our interactive model for Western Digital. Moreover, given the company’s solid growth and favorable outlook, we maintain our $96 price estimate for Western Digital, which is ahead of the current market price. Below we take a look at some of the key trends that we will be watching when the company reports earnings.

Data Center Devices And Solutions To Continue Upward Trend

Given the success of enterprise drives, Western Digital expects greater than 65% growth in exabytes for 2018. This will be fueled by increasing demand for high capacity drives in data centers, artificial intelligence, and big data. Western Digital’s 10 terabytes and above capacity hard disks are doing well, and we expect this to continue going forward. The company also recently released 14 terabyte helium drives that are more reliable and should cater to the ever-increasing needs of data management centers. Moreover, the technological advancements in enterprise SSDs have enabled the company to price its products competitively. This should result in stronger adoption of enterprise SSDs, as demand for high performance drives increases.

Stabilization Of NAND Supply To Boost Client SSD Sales

Western Digital’s sales growth in 2017 was slightly offset by a supply-demand imbalance for NAND which increased SSD prices, resulting in reduced adoption. However, the situation has stabilized now, as supply has actually outpaced the demand. This should result in lower prices for NAND-based drives, thereby narrowing the price difference between SSDs and HDDs. Consequently, the company should experience increased adoption of its mainstream client SSDs. Moreover, the company has started shipping 96-layer 3D NAND product to its retail customers, although at a smaller scale, which bodes well for the company. WDC has planned to ramp up production further into the year.

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