Western Digital: Fiscal 2Q16 Financial Results

in $ million	2Q15	2Q16	6 mo. 15	6 mo. 16
Revenue	3,888	3,317	7,831	6,677
*Growth*		-15%		*-15%*
Net income (loss)	438	251	861	534

Western Digital Corp. reported revenue of $3.3 billion and net income of $251 million, or $1.07 per share, for its second fiscal quarter ended Jan. 1, 2016.

On a non-GAAP basis, net income was $374 million, or $1.60 per share.

In the year-ago quarter, the company reported revenue of $3.9 billion and net income of $438 million, or $1.84 per share. Non-GAAP net income in the year-ago quarter was $539 million, or $2.26 per share.

The company generated $598 million in cash from operations during the second fiscal quarter, ending with total cash and cash equivalents of $5.4 billion. On Nov. 3, 2015 the company declared a cash dividend of $0.50 per share of its common stock, which was paid on Jan. 15, 2016.

“We continue to execute well as we manage our business within an increasingly challenging global economic environment,” said Steve Milligan, CEO. “Despite a lower-than-expected HDD total available market, we reported revenue and EPS within our guidance range, with non-GAAP gross margin of 28.5%. We also had strong free cash flow performance of $449 million. Our storage shipments for the December quarter grew to 69.1EB.”

Comments

One more bad quarter for Western Digital with revenue decreasing 15% Y/Y and 1% Q/Q. For the same period, net is down 33% and 11% respectively.

Total HDDs shipped is diminishing from 51.7 million to 49.7 million quarterly, all categories of drives being impacted but branded and desktop units. The number of enterprise and notebook HDDs shipped during the quarter reaches the lowest figure since three years! Arrival of SSDs changes the market.

Volume and HDD Share

Helium drives shipments totaled a record 1.5 million in the December quarter, including initial shipments of 10TB HDDs.

"The HDD TAM in the December quarter came in somewhat below our expectations," commented CEO Steve Milligan. "The gaming sector was weaker, and enterprise volumes were a bit lighter than expected."

Two of the few growing figures are the number of exabytes shipped (69.1EB) and the average GB/drive (1.39TB) at a unit price of $61, about the same value since 3FQ13.

Enterprise SSD revenue remains at a low level, even if $270 million is an historical record, up from $233 for the former three-month period.

Few days ago, the HDD maker announced the closure of its head wafer manufacturing facility in Odawara, Japan, one of its three head wafer facilities.

With the integration of Hitachi GST, Western Digital expects to realize $400 million of operating expense reduction per year on the run rate basis by the end of 2017.

The company is waiting to complete the acquisition of SanDisk to increase global revenue but both companies are currently shrinking. The deal is supposed to close in the June quarter.

Western Digital expects revenue for the March quarter to be in the range of $2.8 billion to $2.9 billion next quarter, representing a big sequential decrease: 13% to 16%. "We anticipate weak demand in the March quarter resulting in a hard drive TAM of approximately 100 million units," said Milligan.

WD's HDDs
(units in million)

Enterprise

Desktop

Notebook

Branded

Total HDDs

HDD share

Exabyte
Shipped

Average
GB/drive

ASP

4Q13

7.9

16.2

24.0

6.5

5.3

59.9

44.9%

47.7

797

$60

1Q14

7.8

17.3

22.9

8.5

6.1

62.6

44.7%

50.8

811

$58

2Q14

7.8

16.8

22.7

8.8

7.0

63.1

44.4%

55.1

874

$60

3Q14

7.1

16.6

21.8

8.6

6.3

60.4

43.8%

53.6

888

$58

4Q14

7.1

16.2

22.9

10.9

6.0

63.1

45.7%

55.2

875

$56

1Q15

7.8

16.3

23.4

10.5

6.8

64.7

44.0%

64.9

1,002

$58

2Q15

8.0

15.4

21.2

9.3

7.2

61.0

43.4%

66.4

1,087

$60

3Q15

7.5

13.5

18.8

8.6

6.1

54.5

43.6%

61.3

1,123

$61

4Q15

7.2

11.6

15.5

9.1

5.2

48.5

43.7%

56.2

1,159

$60

1Q16

7.2

11.7

15.8

11.5

5.6

51.7

43.6%

63.5

1,228

$60

2Q16

7.0

12.5

15.3

8.5

6.4

49.7

43.2%

69.1

1,390

$61