Western Digital: Fiscal 2Q17 Financial Results

Headcount diminished quarterly by 1,472 and company back to profitability.

This is a Press Release edited by StorageNewsletter.com on January 27, 2017 at 2:44 pm

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(in $ million)	2Q16	2Q17	6 mo. 16	6 mo. 17
Revenue	3.317	4.888	6.667	9.602
*Growth*		47%		*44%*
Net income (loss)	251	235	534	(131)

Western Digital Corp. reported revenue of $4.9 billion, operating income of $545 million and net income of $235 million, or $0.80 per share, for its second fiscal quarter ended December 30, 2016.

The GAAP net income for the period includes charges associated with the company’s recent acquisitions. Excluding these charges and after other non-GAAP adjustments, second quarter non-GAAP operating income was $995 million and non-GAAP net income was $675 million, or $2.30 per share.

In the year-ago quarter, the company reported revenue of $3.3 billion, operating income of $251 million and net income of $251 million, or $1.07 per share. Non-GAAP operating income in the year-ago quarter was $427 million and non-GAAP net income was $403 million, or $1.72 per share.

The company generated $1.1 billion in cash from operations during the second fiscal quarter of 2017, ending with approximately $5.2 billion of total cash and cash equivalents, and available-for-sale securities.

On Nov. 3, 2016, the company declared a cash dividend of $0.50 per share of its common stock, which was paid to shareholders on Jan.17, 2017.

“We reported strong financial performance in the December quarter enabled by excellent operational execution by our team in a favorable market environment,” said Steve Milligan, CEO. “We saw healthy demand for capacity enterprise HDDs, all NAND based products and HDDs in client applications. We also achieved targeted cost and efficiency improvements and improved our liquidity position with continued strong cash flow performance. We continue to execute well on key strategic priorities, including the integration of HGST, SanDisk and WD, and the ramp of 3D NAND technology. We are achieving our planned synergy targets and are progressing with our transition to 3D NAND technology with the ramp of our 64 layer architecture.”

Comments

Sales of WD jumped by 47% Y/Y but the revenue of SanDisk was not included in the quarter one year ago. A better comparison is from the former three-month period: +4% to reach $4.9 billion.

The loss of $366 million became a profit of $235 million for the same two quarters respectively.

For the next one, the company expects revenue of $4,550 being down 7% Q/Q.

Worldwide head account diminished from 72,273 to 70,801 Q/Q being mainly the results of the consolidation of the two companies.

"With respect to the SanDisk integration, as of the end of our fiscal second quarter, we have realized synergies of approximately $135 million on an annual run rate basis, toward our 18-month target of achieving $500 million of total run rate synergies on an annualized basis," said CFO Mark Long.

For the last quarter WD lost two points in the worldwide HDD market share with shipments slipping to 44.8 million units representing 39.9% of the total hard disk drives shipped. HDD shipped decline 13% Y/Y and 6% Q/Q. Seagate was the only HDD maker increasing market share in 4CQ16.

WD's CEO Steve Milligan said during the conference call: "The TAM (total available market) came in this past quarter in terms of calendar Q4 at call it 112 million unit range. We would say that it probably would dropped to let's just call it 100 million unit range and pretty much all of that decline is largely due to the PC area." Adding:" Notably the December quarter marked a cumulative shipment milestone of more than 12 million helium drives reflecting our leadership in this category."

Shipments of HDDs increased in all categories but were slightly down for enterprise drives and decreased deeply (33% sequentially) for CE units affected by the lowering global demand of game consoles.

Revenue in data center devices and solutions was $1.4 billion. Client devices (which include both hard drives and flash based products) was $2.4 billion and client solutions was $1.1 billion. In each end market, revenue was flat to up from the September quarter, which underscores a good performance as the September quarter is typically WD's strongest period.

Concerning SanDisk business, Milligan said his company commenced retail shipments and OEM sampling of its 64-layer products in the December quarter, adding: "We are on track to begin sampling enterprise SSD products utilizing 64-layer of BiCS3 this calendar year."

Volume and HDD Share

WD's HDDs (units in million)	Enterprise	Desktop	Notebook	CE	Branded	Total HDDs	HDD share	Exabyte Shipped	Average GB/drive	ASP
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
3Q16	6.4	10.7	13.6	7.3	5.2	43.1	43.2%	63.7	1,443	$60
4Q16	6.0	7.9	11.4	10.0	4.7	40.1	40.7%	66.1	1,648	$63
1Q17	6.5	9.0	14.6	12.3	5.2	47.5	41.9%	80.0*	1,684	$61
2Q17	6.4	9.9	14.7	8.2	5.5	44.8	39.9%	77.8*	1,737	$62

Seagate vs. WD for 2FQ17
(revenue and net income in $ million, units in million)

	Seagate	WD	% in favor of WD
Revenue	2,894	4,888	*69%*
Net income	297	235	*-21%*
Notebook	8.6	14.7	71%
Desktop	8.9	9.9	-11%
Branded	6.3	5.5	-13%
CE	8.1	8.2	1%
Enterprise	8.1	6.4	-22%
Total HDDs	39.9	44.8	*12%*
Market share	35.5%	39.9%	4.4%
Average GB/drive	1,716	1,737	1%
Exabytes shipped	68.2	77.8*	14%
HDD ASP	$67	$62	-7%

*for combined HDDs an SSDs

To read the earnings call transcript