Western Digital Corp.
) posted third-quarter 2013 adjusted earnings per share ("EPS")
of $2.10, comprehensively beating the Zacks Consensus Estimate of
Revenues during the quarter increased 24.0% year over year to
$3.76 billion and were above the company's guidance range of
$3.55-$3.65 billion. Western Digital surpassed its revenue
guidance primarily due to better-than-expected business and
product demand, as well as restricted price declines.
The drives having a capacity of 810 gigabytes were exported
during the reported quarter, which witnessed a 35% year-over-year
increase. Western Digital also witnessed momentum in its branded
and enterprise businesses and a good product mix-up in the
company's client business to cope with the ever-increasing amount
of digital content.
WDC's focus on the growth trends in digital data supported the
robust results from the HGST and WD subsidiaries.
Gross margin in the reported quarter was 28.2% versus 32.2% in
the year-ago quarter. Moreover, non-GAAP gross margin was 29.2%,
which excludes $38.0 million related to amortization expense to
acquire intangible assets of HGST. This apart, non-GAAP gross
margin exceeded the guidance by 120 basis points.
Operating margin for the quarter was 11.1%, down from 17.9%
reported in the year-ago quarter. Total operating expense
increased 48.0% due to higher research and development (R&D)
and selling, general and administrative (SG&A) expense.
Net income for the quarter was $391.0 million or $1.60 per
share, up from $483.0 million or $1.93 per share in the year-ago
quarter. Excluding amortization of intangibles related to the
acquisition of HGST, employee termination benefits and other
charges, non-GAAP/adjusted net income was $514.0 million or $2.10
per share, down from $619.0 million or $2.52 per share in the
Balance Sheet & Cash Flow
The company generated $727.0 million from cash from operations
in the third quarter, down from $772.0 million in the year-ago
quarter. Cash and cash equivalents were $4.06 billion, up from
$3.82 billion in the previous quarter.
Out of the capital being allocated to the company, the company
has repurchased 5.2 million shares for $243 million during the
For the fourth quarter, Western Digital also expects the
market share to remain unchanged. The company expects revenues in
the range of $3.55 billion to $3.65 billion, while gross margin
is expected to be well within the company's model at
approximately 28.5%. We expect R&D and SG&A spending to
be approximately $550 million, which excludes the amortization of
HGST intangibles. Moreover, the company expects non-GAAP earnings
per share between $1.65 and $1.80 for the fourth quarter.
The company's third-quarter earnings exceeded our expectation,
and revenues increased on a year-over-year basis. The company
witnessed decent product demand and the price declines
Moreover, decent performance by Western Digital's HGST and WD
subsidiaries helped the company perform better in the third
quarter, and it continued to capitalize on the secular growth of
We are also encouraged by Western Digital's growing exposure
in the small and medium business (SMB) space. Recently, the
company expanded its SMB product suite. Higher IT spending from
the SMBs is a good sign and we believe that Western Digital is
well positioned to capitalize on the opportunity. On the other
hand, decline in PC sales may affect business going forward.
Currently, Western Digital has a Zacks Rank #3 Rank (Hold).
Investors can also consider other technology stocks.
Super Micro Com.
) has a Zacks Rank #1 (Strong Buy),
) having a Zacks Rank #2 (Buy) and
) having a Zacks Rank #2 (Buy).
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