WD: Fiscal 2Q11 Financial Results

(in US$ millions)	2Q10	2Q11	6 mo. 10	6 mo. 11
Revenues	2,619	2,475	4,827	4,871
*Growth*		-5%		1%
Net income (loss)	429	225	717	422

Western Digital Corp. reported revenue of $2.475 billion, hard-drive unit shipments of 52.2 million and net income of $225 million, or $0.96 per share, for its second fiscal quarter ended Dec. 31, 2010.

In the year-ago quarter, the company reported revenue of $2.619 billion, shipped 49.5 million hard drives, and reported net income and earnings per share of $429 million and $1.85, respectively.

The company generated $505 million in cash from operations during the December quarter, ending with total cash and cash equivalents of $3.1 billion.

"We are pleased to deliver better-than-expected revenues, profitability and gross margin in the December quarter, reflecting solid execution and an improvement in hard drive industry conditions compared with the prior two quarters," said John Coyne, president and chief executive officer. "The opportunity for profitable growth in our industry remains tremendous and we are committed to improving our financial performance over the longer term. We plan to do so with a continued emphasis on our industry-leading low-cost structure, high quality, highly reliable and highly available products, and a sharp focus on matching production with true customer demand."

Comments

Abstracts of the earnings call transcript:

John Coyne, chairman and CEO:
"Calendar 2010 was a year of tremendous opportunity for the hard drive industry with 651 million drives shipped. That's 330 million terabytes of storage capacity sold into a broadening set of applications and markets. At 16%, this was the industry's strongest full year unit growth in five years. Rotating magnetic storage remains the dominant technology solution for high-volume mass storage of digital content in both the consumer and commercial markets. Full year revenue for the industry expanded by some 13% to $34 billion. However, it was also a year of significant missed opportunity as the industry's supply-demand dynamic deteriorated as the year progressed, resulting in sharply declining ASPs, with the final quarter demonstrating a year-over-year decline in industry revenue of 7% on a unit increase of 4%, and an even sharper decline in profitability.
"WD again outperformed the industry in calendar 2010. We grew units 23%, revenues by 19% and operating income by 12%. The operating income number reflected the significant challenge of the industry's ASP deterioration that emerged midyear.
"In the coming year, we expect the hard drive volume opportunity to approach 700 million units, representing a storage capacity of approximately 440 million terabytes. Our estimate of the investment required by the hard drive community, including our component suppliers, to support this growth is approximately $5 billion.
In the context of solid state technology, we also continue to evaluate the opportunity to combine rotating magnetic storage with flash into hybrid solutions."

Timothy Leyden, COO:
"Looking at our served markets in the December quarter. In the compute space, units increased from 114 million to 118 million.
"While the OEM PC shipments increased by nearly 4% sequentially, HDD shipments increased by only 2%, leading to a reduction in inventory within the PC manufacturers' pipeline."

Wolfgang Nickl, CFO:
"Hard drive shipments totaled 52.2 million units, up 5% from the prior year period and 3% sequentially. Revenue from sales of WD TV Media Player, WD LiveWire network kits and solid state drives totaled approximately $57 million, up 21% from the prior year and up 54% from the September quarter. Average hard drive selling price was approximately $47 per unit, down $5 from the year ago quarter and up $1 from the September quarter. Revenue from sales of our branded products, including WD TV and WD LiveWire products, was $546 million, down 4% from the year ago quarter and up 28% sequentially.
"Our gross margin for the quarter was 19.2%, down from 26.2% in the year ago quarter and up from 18.2% in the September quarter.
Our guidance for fiscal Q3 is as follows: we expect revenue to be in the range from $2.2 billion to $2.25 billion."