WD: Fiscal 3Q14 Financial Results

(in US$ million)	3Q13	3Q14	9 mo. 13	9 mo. 14
Revenues	3,764	3,703	11,623	11,479
*Growth*		-3%		*-5%*
Net income (loss)	391	375	1,245	1,300

Western Digital Corp. reported revenue of $3.7 billion and net income of $375 million, or $1.55 per share for its third fiscal quarter ended Mar. 28, 2014.

On a non-GAAP basis, net income was $470 million or $1.94 per share.1 In the year-ago quarter, the company reported revenue of $3.8 billion, net income of $391 million, or $1.60 per share. Non-GAAP net income in the year-ago quarter was $514 million, or $2.10 per share.2

The company generated $697 million in cash from operations during the March quarter. During the quarter, the company utilized $244 million to buy back 2.8 million shares of common stock. It ended the quarter with total cash, cash equivalents and investments of $5.0 billion. On Feb. 6, the company declared a $0.30 per common-share dividend, which was paid on Apr. 15.

“We achieved solid financial results for the March quarter as we continue to participate in the ongoing growth of data, with an intense focus on helping our customers succeed in a rapidly changing environment,” said Steve Milligan, president and CEO. “Cash generation remained strong. Our steady financial performance continues to demonstrate an ability to manage the business and deliver ongoing value to our customers and shareholders.“

Comments

For the worldwide HDD industry, the first three months of the year were a bad period. $3.406 billion in revenue is the lowest figure for Seagate since two years and a half. With $3.703 billion, it's also the lowest one for WD since one year and a half.

Sequentially, WD saw global sales declining 7%, net income 13% and number of HDDs 4%.

"The industry TAM was slightly higher than anticipated, driven by the strength in gaming," remarked WD president and CEO Steve Milligan.

It confirms a trend noted since several months: HDD manufacturing is no more a growing business. Trendfocus just published its numbers for the first three months of the year: 138.1 million HDDs shipped worldwide for the trio WD/Seagate/Toshiba down 3.1% sequentially, with this comment: "CE and branded sales decline seasonally - Enterprise sales ease for a third consecutive quarter."

WD's enterprise SSD (including products following acquisitions of sTec, Velobit, and Virident) revenue was $134 million, down 13.5% Q/Q. Milligan said: "I think you've got to keep in mind that relative to the sTec side, the momentum there was not exactly positive. So I think you've got to consider that really we bought a, I hate to call it this, but a little bit of a distressed asset."

Outlook is soft for next quarter: "Revenue to be seasonally down and in a range of $3.5 billion to $3.6 billion."

Seagate vs. WD for first three months of 2014

Seagate

% in favor
of WD

Revenue*

3,406

3,703

Net income*

192

375

95%

HDD shipped in million

Notebook

16.4

21.8

33%

Desktop

19.8

16.6

-16%

Branded

5.9

6.3

5.4

8.6

59%

Enterprise

7.7

7.1

-8%

Total HDDs

55.2

60.4

Market share

40.0%

43.8%

10%

Average GB/HDD

920

888

-4%

EB shipped

50.8

53.6

ASP

$61

$58

-5%

* in $ million

Units
in million

Enterprise

Desktop

Notebook

Branded

Exabyte
Shipped

Average
GB/drive

ASP

1Q12

2.4

21.6

19.6

7.1

36.7

634

$46

2Q12

1.7

11.4

9.8

2.4

3.2

16.5

578

$69

3Q12

3.6

16.0

18.1

3.6

2.9

25.7

581

$68

4Q12

7.9

21.2

32.8

4.2

5.0

47.4

668

$65

1Q13

6.0

16.8

25.9

8.0

5.8

44.3

708

$62

2Q13

6.6

17.7

21.3

6.5

7.1

47.6

804

$62

3Q13

7.2

18.4

21.5

6.5

48.4

807

$61

4Q13

7.9

16.2

24.0

6.5

5.3

47.7

797

$60

1Q14

7.8

17.3

22.9

8.5

6.1

50.8

811

$58

2Q14

7.8

16.8

22.7

8.8

7.0

55.1

874

$60

3Q14

7.1

16.6

21.8

8.6

6.3

53.6

888

$58

We finish with two interesting comments of Milligan concerning the continuing difficulties with MOFCOM regulatory body in China concerning the acquisition of HGST, and another one following the acquisition of Xyratex, one of its supplier, by rival Seagate.

"I wanted to address the topic of our discussions with China's Ministry of Commerce. Consistent with our prior commentary, we had the opportunity to submit a request in March for MOFCOM to lift the hold separate restrictions on our business. We have done so and we continue to work with MOFCOM as they review our submission. In the meantime, we continue to operate our HGST and WD subsidiaries separately."

"We are generally comfortable with where we're at in terms of our relationship with our test equipment suppliers, including with Xyratex/Seagate. There are contractual provisions that were put in place prior to the closing of that transaction that we believe sufficiently protect us, and will provide for a constructive relationship going forward."