Western Digital Corp.
) posted first quarter 2013 adjusted earnings per share (EPS) of
$2.36, beating the Zacks Consensus Estimate of $2.31.
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Revenues during the quarter increased 49.8% year over year to
$4.04 billion and came slightly above the company's revised
guidance range and the Zacks Consensus Estimate of $4.0 billion.
Hard drive shipments were 62.5 million units during the quarter,
up from 57.8 million in the year-ago quarter. Average selling
price (ASP) increased to $62 from $46 in the year-ago quarter.
But both volume and ASP dropped on a sequential basis.
Western Digital recorded 63% of revenues from original equipment
manufacturer (OEM) sales (53% in the year-ago quarter);
distribution channel sales were 24% of total revenue (29% in the
year-ago quarter), while retail sales were 13% (18% in the
year-ago quarter). The top 10 customers of the company
constituted 44.0% of total revenue, down from 49% in the year-ago
Gross margin in the reported quarter was 29.6% versus 20.1% in
the year-ago quarter. Gross margin exceeded the company's
estimate on the back of higher shipments and ASP.
Operating margin for the quarter was 14.7%, up from 9.6% reported
in the year-ago quarter. Total operating expense shot up 113.1%
on higher research and development (R&D) and selling, general
and administrative (SG&A) expense.
Net income for the quarter was $519.0 million or $2.06 per share,
up from $239.0 million or $1.01 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 $594.0 million or $2.36 per
share versus $260.0 million or $1.10 in the year ago quarter.
Balance Sheet & Cash Flow
The company generated $936.0 million in cash from operations in
the first quarter, down from $1.13 billion in the year-ago
quarter. Cash and cash equivalents were $3.54 billion versus
$3.21 billion in the previous quarter.
Capital spending and depreciation and amortization for the first
quarter totaled $382.0 million and $313.0 million, respectively.
The company has a debt balance of $1.41 billion, down from $1.95
billion reported in the previous quarter.
The company's conversion cycle was a positive 4 days. This
consisted of 44 days of receivables, 42 days of inventory, or 9
turns, and 82 days payables.
Western Digital bought back 5.2 million shares worth $218.0
million. The board declared the first quarterly dividend of 25
cents per share, which was paid on October 15 to shareholders of
record as of September 28.
Western Digital provided a cautious guidance for the second
quarter 2013 keeping in view the dampening macroeconomic
environment and its adverse impact on near-term demand, slowing
PC demand and normalizing hard disk drive supply. Revenue is
expected to be within $3.55 billion and $3.70 billion and total
operating expenses are expected to be $525.0 million. Total
addressable market is expected to be 140 million.
Assuming a gross margin of 28.0% and diluted shares outstanding
of 248 million, Western Digital expects non-GAAP EPS in the range
Management asserted that the company is well-positioned to
achieve long-term growth in storage and digital content
management. The management also thinks that new product launches,
further cost optimization, strategic allocation of capital and
efficient execution will drive customers. Hence, the company
expects to achieve EPS of $10 in fiscal 2013.
The company would continue to invest in growth opportunities
while at the same time, return approximately 50% of the free cash
flow to shareholders.
The company's first quarter results exceeded our expectations,
with EPS and revenue beating the Zacks Consensus Estimates.
Year-over-year comparisons were also encouraging. The benefits
achieved from higher ASPs due to tight supply of hard disk drives
(HDDs) resulting from disruption caused by Thailand flood, are
exhausting. This is due to normalization of supply/demand
metrics. This has been reflected in the company's second quarter
guidance, which is sequentially weak. But management brought in
some comfort with its commentary of cost reduction and efficient
We believe that the Hitachi deal will strengthen its foothold in
the data storage business. Although the company has been able to
handle competition efficiently, bigger players like
Seagate Technology plc
), Fujitsu Ltd, Samsung and Toshiba pose considerable challenges.
Currently, Western Digital has a Zacks #3 Rank (implying a
short-term Hold rating).