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WD: Fiscal 4Q14 Financial Results

Gaining market share vs. Seagate

(in $ million) 4Q13 4Q14 FY13 FY14
Revenue 3,728 3,651 15,351 15,130
Growth   -2%   -1%
Net income (loss) (265) 317 980 1,617

Western Digital Corp. reported financial results for the fourth quarter and fiscal year ended June 27, 2014.

For the fourth quarter, the company reported revenue of $3.7 billion and net income of $317 million, or $1.32 per share. On a non-GAAP basis, net income was $445 million or $1.85 per share.1

In the year-ago quarter, the company reported revenue of $3.7 billion, a net loss of $265 million, or $1.12 per share. Non-GAAP net income in the year-ago quarter was $477 million, or $1.96 per share.2

The company generated $713 million in cash from operations during the June quarter, ending with total cash and cash equivalents of $4.8 billion. During the June quarter, the company utilized $272 million to repurchase 3.2 million shares of common stock. On May 14, the company declared a $0.40 per common-share dividend, which was paid on July 15.

For the fiscal year, the company achieved revenue of $15.1 billion and net income of $1.6 billion, or $6.68 per share, compared to fiscal year 2013 revenue of $15.4 billion and net income of $980 million, or $3.98 per share. On a non-GAAP basis, fiscal 2014 net income was $2.0 billion, or $8.10 per share, compared to fiscal 2013 net income of $2.1 billion or $8.53 per share.3  The company generated $2.8 billion in cash from operations during the fiscal year and it utilized $1.1 billion for dividends and share repurchases.

We achieved strong financial results in the June quarter, with better-than-anticipated revenue, healthy gross margin performance and continued strong cash flow generation,” said Steve Milligan, president and CEO. “We did so by addressing continued robust demand in gaming and stronger-than-expected demand in notebook PCs, demonstrating our flexibility and capability in high-volume businesses. We also saw strength in our performance enterprise business.

“Longer term, we remain excited about Western Digital’s strong strategic position at the center of the storage ecosystem, which continues to expand, evolve and transform. The creation of digital data continues unabated and the strategic value of that content is increasing. With our deep insight and experience, we will continue to play a vital role in unlocking the value of data with innovative and industry-leading storage devices and solutions.”

1 Non-GAAP net income for the fourth quarter fiscal 2014 consists of GAAP net income of $317 million plus $47 million of amortization of intangibles related to the acquisitions of HGST, sTec, VeloBit and Virident, $13 million of charges related to litigation and $68 million of employee termination, asset impairment and other charges. Non-GAAP earnings per share of $1.85 for the fourth quarter is calculated by using the same 241 million diluted shares as is used for GAAP earnings per share. The tax effect of the aforementioned items was not material.
2 Non-GAAP net income for the fourth quarter fiscal 2013 consists of GAAP net loss of $265 million plus $681 million for charges related to an arbitration award, $46 million for amortization of intangibles related to the acquisition of HGST and $15 million for employee termination benefits and other unrelated charges. Non-GAAP earnings per share of $1.96 for the fourth quarter is calculated using 243 million diluted shares. The tax effect of the aforementioned items was not material.
3 Non-GAAP net income for fiscal 2014 consists of GAAP net income of $1.6 billion plus $195 million of amortization of intangibles related to the acquisitions of HGST, sTec, VeloBit and Virident, $64 million of charges related to litigation, $133 million of employee termination, asset impairment and other charges, $13 million of acquisition charges and $4 million of expense due to the write-off of debt issuance costs offset by a $65 million gain on an insurance recovery. Non-GAAP earnings per share of $8.10 for fiscal 2014 is calculated by using the same 242 million diluted shares as is used for GAAP earnings per share. Non-GAAP net income for fiscal 2013 consists of GAAP net income of $980 million plus $681 million for charges related to an arbitration award, $193 million for amortization of intangibles related to the acquisition of HGST, $138 million for employee termination benefits and other charges and a net $106 million for tax-related matters and other unrelated charges. Non-GAAP earnings per share of $8.53 for fiscal 2013 is calculated by using the same 246 million diluted shares as is used for GAAP earnings per share. The tax effect of the aforementioned items was not material.

Comments

In the worldwide hard disk drive market, Seagate lost market share - around 5% - in the second quarter of calendar year, WD gaining more than 4% at the same time.

For its HDDs, WD reported continued strength in the gaming space, better-than-expected demand in notebook PCs and strength in performance enterprise that countered the softness in capacity enterprise.

 The company anticipates better demand in the second half of the calendar year as it benefits from an improving demand profile for PCs, as well as from growth in the capacity enterprise space. TAM is expected by WD at around 145 million units for next quarter - compared to 138 million for the last three-month period - resulting higher revenue, in the range of $3.8 billion to $3.9 billion.

The only bad news concerns SSDs and profitability as HDDs' ASP declined quarterly from $58 to $56. Even with the acquisition of sTec, VeloBit and Virident, SSD revenue of enterprise flash drives declined for the third quarter consecutively, from $155 million to $134 million and $113 million. Net income dip by 15% Q/Q to $317 million.

 
 
WD's HDD units
in million
Enterprise Desktop Notebook CE Branded Exabyte
Shipped
Average
GB/drive
ASP
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 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
4Q14 7.1 16.2 22.9 10.9 6.0 55.2 875 $56

 Seagate vs.WD for 4FQ14

  Seagate WD % in favor
of WD
Revenue* 3,301 3,651 11%
Net income* 320 317 -1%
HDD shipped in million      
Notebook 16.8 22.9  36%
Desktop 18.4 16.2  -12%
Branded 4.8 6.0  25%
CE 5.1 10.9  114%
Enterprise 7.4 7.1  -4%
Total HDDs 52.5 63.1  20%
Market share 38.0% 45.7%  7.7%
Average GB/drive 945 875  -7%
EB shipped 49.6 55.2  11%
ASP $60 $56  -7%

* in $ million

 Seagate vs.WD for FY14 in $ Million

in $ million Seagate WD % in favor
of WD
Revenue 13,724 15,130 10%
Net income 1,570 1,617  3%

 

 

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