Western Digital Corp.
) reported second-quarter 2014 non-GAAP earnings per share of
$2.19, which beat the Zacks Consensus Estimate of $2.08. Earnings
also increased 4.9% from the year-ago quarter.
Western Digital reported revenues of $3.97 billion for the
second quarter, which not only increased 3.9% from the year-ago
quarter but also topped the Zacks Consensus Estimate of $3.86
billion. Reported revenues also came ahead of management's
guidance range of $3.775 billion-$3.875 billion.
During the quarter, Western Digital shipped 63.1 million hard
drives at an average selling price (ASP) of $61.0. Reported
shipment was up from 62.6 million sequentially and 59.2 million
shipped in the year-ago quarter. However, ASP for the quarter was
down from $62.0 in the year-ago quarter but up sequentially from
Western Digital's market share in the total addressable market
(TAM) decreased marginally from 44.7% in the previous quarter to
44.4%. However, market share expanded from 43.6% reported in the
Nonetheless, Western Digital's shift toward non-PC
applications continued as 34% of the quarter's revenues came from
the segment. Moreover, the company reported $155 million in
revenue contribution from the Enterprise Solid State Drive (SSD)
segment which increased from $106 million in the previous quarter
and $89 million contributed in the year-ago quarter. Moreover,
the company reduced its reliance on its top 10 customers this
quarter. Western Digital's top 10 customers contributed 42% of
the revenues compared to 45% in the year-ago quarter and 48% in
the previous quarter.
Western Digital's non-GAAP gross margin expanded 142 basis
points (bps) aided by favorable business mix and a higher revenue
Operating margins declined 47 bps during the quarter primarily
due to higher-than-expected operating expenses. Operating
expenses as a percentage of revenues increased 150 bps. Western
Digital's non-GAAP net income came in at $532 million or $2.19
per share compared with $513 million or $2.09 per share reported
in the year-ago quarter.
Balance Sheet & Cash Flow
Cash and cash equivalents were $4.66 billion compared with
$4.87 billion in the previous quarter. During the quarter, the
company generated $727 million in cash from operations compared
to $680 million in the previous quarter. Western Digital
generated free cash flow of $557 million.
The company repurchased stocks worth $150 million and paid
dividends of $59 million during the quarter.
For the third quarter, revenues are expected in the range of
$3.65 billion to $3.75 billion, sequentially down due to lower
TAM impacted by seasonality. The Zacks Consensus Estimate is
pegged at $3.690 billion.
Gross margin is expected in the range of 27% to 32%.
Management expects non-GAAP earnings per share to be between
$1.80 and $1.90 for the March quarter. The forecast includes a 10
cent dilution impact due to the acquisitions of sTec and
Virident. The Zacks Consensus Estimate is pegged at $1.89 per
Western Digital reported better-than-expected second-quarter
results. However, the company's guidance remained tepid as
management cited seasonal factors. Moreover, the recent
acquisitions will have dilutive effect on the company's bottom
Nonetheless, the secular growth of digital data and growing
exposure to the small and medium business space are long-term
positives. The company is launching storage devices to attract
more customers. Continued investments for product innovation
could result in flattish margins in the near term.
Moreover, strategic acquisitions to expand its offerings in
the SSD segment is expected to place Western Digital in a better
position compared to its peers such as
Western Digital Corp. carries a Zacks Rank #1 (Strong
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