WD: Fiscal 2Q10 Financial Results

(in US$ millions)	2Q09	2Q10	6 mo. 098	6 mo. 10
Revenues	1,823	2,619	3,933	4,827
*Growth*		+44%		*+23%*
Net income (loss)	14	429	225)	717

Western Digital Corp. reported revenue of $2.6 billion, hard drive shipments of 49.5 million units and net income of $429 million, or $1.85 per share, for its second fiscal quarter ended Jan. 1, 2010. In the year-ago quarter, the company reported revenue of $1.8 billion, hard drive shipments of 35.5 million units, and net income of $14 million. The year-ago net income included $113 million of restructuring charges.

The company generated a record $557 million in cash from operations during the second quarter, ending with total cash and cash equivalents of $2.4 billion.

"We are very pleased with WD’s strong financial performance in our second fiscal quarter," said John Coyne, president and chief executive officer. "For
the third consecutive quarter, we increased output in a supply
constrained environment, providing strong support of our customers’
growth opportunities, primarily in the consumer segment but, notably,
with some emerging strength in the commercial sector. Continued
customer preference for WD products, our timely investments in capital,
the support of our supply partners and outstanding execution by the WD
team generated record revenue and profits. A moderate pricing
environment, combined with our passionate focus on cost and efficiency,
enabled gross margins of 26.2 percent – well above the high end of our
model range."

Comments

WD shipped a record 49.5 million HDDs during the quarter, a figure to be compared with 49.9 million by Seagate for the same quarter, and with a slight better net income. If the growth trend of the two companies continue, WD will probably surpass the current number one HDD manufacturer this year in term of units shipped, maybe next quarter, but probably later in term of revenues as Seagate is very strong in more expansive enterprise drives. Note that for the last six months, revenue growth was 7% for Seagate and 23% for WD.

Steve Luczo is doing a better job than predecessor Bill Waltkins since he comes back as CEO of Seagate last January 2009. But the undeniable, indisputable, undubitable, unquestionable best CEO of the HDD industry is since several years John Coyne.

John Coyne president and CEO:

"Our compound annual growth rate over the last three calendar years which included the dampening effect of the recession was 19% for revenue, 25% for units and 29% for net income.
"In the December quarter driven by strong customer adoption of our newest products, we led the industry in volume shipments of the market’s largest capacity points in the industry’s fastest growing segment; one terabyte, 750 gigabyte and 640 gigabyte 2.5 inch drives in the branded products and notebooks markets and two terabyte 3.5 inch drives in the branded and enterprise SATA sectors.
"We expect to have an enterprise ready solid state product line offering in 2011."

Tim Leydon, CFO:

"Non hard drive revenue including sales of WD TV, HD media sales and solid state drives totaled approximately $47 million compared to $12 million in the prior year and $36 million in the September quarter. Average hard drive selling price was approximately $52.00 per unit, up $1.00 from the year ago quarter and up $3.00 from the September quarter.
"We shipped 21.2 million mobile drives in the December quarter compared to 13.8 million in the year ago quarter and 19.2 million in the September quarter.
"During the December quarter, we shipped 4.1 million drives into the DVR market, flat with the year ago quarter and up from 3.1 million in the September quarter.
"Revenue from sales of our branded products including WD TV was $569 million up 41% from $4403 million in the year ago quarter and 49% sequentially from $382 million in the September quarter.
"Moving on to our sales channel and geographic results; revenue by channel was 48% OEM, 30% distribution and 22% branded products in the December quarter compared with 57%, 21% and 22% in the year ago quarter and 52%, 31`,% and 17% in the September quarter respectively. The geographic space of our revenue was 25% America’s, 25% Europe and 50% Asia as compared to 23%, 29% and 48% in the year ago quarter and 22%, 22% and 56% in the September quarter.
"Historically March quarter demand has been down sequentially in a range from 5% to 7%. However that true demand in the December quarter was not entirely satisfied and this coupled with an expectation of continuing strong demand for digital storage leads us to margin the market size of between 152 to 158 million units, a sequential decline of 1% to 5%. We anticipate that pricing will be flat to down but will be rational based on supply demand balance in all markets. Consequently, we expect revenue for WD to be in a range from $2.45 billion to $2.6 billion."