WD: Fiscal 3Q11 Financial Results

in US$ millions)	3Q10	3Q11	9 mo. 10	9 mo. 11
Revenues	2,641	2,252	7,468	7,123
*Growth*		-15%		*-5%*
Net income (loss)	400	146	1,118	568

Western Digital Corp. reported revenue of $2.25 billion, hard-drive unit shipments of 50 million and net income of $146 million, or $0.62 per share, for its third fiscal quarter ended Apr. 1, 2011.

The company’s results include expenses of $10 million associated with the planned acquisition of Hitachi Global Storage Technologies announced Mar. 7, 2011. Excluding the acquisition-related expenses, non-GAAP net income was $156 million or $0.66 per share.

In the year-ago quarter, the company reported revenue of $2.64 billion, shipped 51 million hard drives, and reported net income and earnings per share of $400 million and $1.71, respectively.

The company generated $313 million in cash from operations during the March quarter, ending with total cash and cash equivalents of $3.2 billion.

"The March quarter in the hard drive industry was impacted by two significant developments – the delayed supply of industry CPUs to PC makers and the tragic events in Japan," said John Coyne, president and chief executive officer. "While demand for hard drives in the quarter got off to a slow start, it later picked up as availability of CPUs improved and as fears took hold of component shortages related to the events in Japan. In relation to our planned acquisition of Hitachi GST, we are in the approval process with all required regulatory agencies, our integration planning is well underway and we have successfully syndicated the loan financing associated with the transaction."

Comments

Abstracts of the earnings call transcript:

Timothy Leyden, COO:

"We shipped 49.8 million units in the March quarter, down 4.6% sequentially and 2.5% from the year ago period. While the overall market declined by 4.8%, and 2.3%, respectively.

"WD shipped 36.3 million units into the compute space in the March quarter, compared to 37.8 million units in the December quarter, and 38.5 million units in the year ago quarter, as we maintained essentially flat market share in all three periods.

"And the airline enterprise market was up sequentially from 5.4 million to 5.6 million units, and up from 5.2 million units year-on-year. Driven by the expansion of cloud computing, this market continues to offer further growth opportunity. The traditional enterprise market at 8.3 million units remained flat with the December quarter, and was up year-on-year from 7.4 million units, reflecting the continued strength of the commercial market.

"The shift to 2.5-inch SAS continued, as a percentage of total market represented by this platform has now advanced to around 54% of the TAM. WD shipped 2.3 million units into the combined enterprise markets in the March quarter.

"WD shipped 6.4 million units into this [branded] market in the March quarter, down from 7.4 million units in the December quarter and up from 5.6 million units in the year ago quarter.

"WD shipped 4.7 million units into this [DDR] market in the March quarter, essentially flat with the December quarter and up slightly from 4.6 million in the year ago quarter.

"Now turning to the June quarter. We believe that in an environment absent the impact of the Japanese earthquake, that the true demand for HDDs in the compute space would follow a seasonal demand patterns, and would be flat to down from the March quarter. However, given the likely impacts, we believe that HDD TAM in the June quarter will be supply constrained. Shortages at this point appear to be more acute in 2.5-inch drives but we expect the product will also be short in the 3.5-inch form factor."

Wolfgang Nickl, CFO:

"Average hard drive selling price was approximately $45 per unit, down $6 from the year ago quarter, and $2 from the December quarter. Revenue from sales of our branded products, including WD TV and WD LiveWire products, was $441 million, down 6% from the year ago quarter and 19% sequentially.

"Geographically the regions contributed roughly the same relative percentage of revenue as in the December quarter, with Asia's sales continuing to represent the majority of our revenue. From a channel perspective, retails percentage of revenue declined along seasonal expectations, while our OEM percentage increased slightly. Our gross margin for the quarter was 18.2%, down from 25.2% in the year ago quarter, and 19.2% in the December quarter.

"(…) our guidance for fiscal Q4 is as follows: We expect revenue to be in the range from $2.2 billion to $2.25 billion; R&D and SG&A spending of approximately $245 million, excluding acquisition-related expenses; we expect our tax rate to be in the middle of our business model range of 6% to 9%; we anticipate our share count to be approximately 238 million; we estimate non-GAAP earnings per share of between $0.60 and $0.65 for the June quarter, which excludes acquisition-related expenses."