10-KPeriod: FY2017

WESTERN DIGITAL CORP Annual Report, Year Ended Jun 30, 2017

Filed August 29, 2017For Securities:WDC

Summary

Western Digital Corporation (WDC) reported strong revenue growth in fiscal year 2017, primarily driven by the full year impact of the SanDisk acquisition completed in May 2016. Revenue increased by 47% to $19.09 billion. The company's gross margin also saw significant improvement, rising to 31.8% from 26.4% in the prior year, largely due to the higher-margin nature of SanDisk's NAND-flash products and ongoing manufacturing integration efforts. Despite increased operating expenses, particularly in R&D and SG&A related to the acquisition, operating income saw a substantial jump from $466 million to $1.95 billion. However, the significant increase in debt to finance the SanDisk acquisition led to a substantial rise in interest expense, impacting net income, which grew to $397 million from $242 million in fiscal year 2016. The company's strategy focuses on leveraging innovation and execution to be an industry leader in storage solutions, optimizing its core HDD business, and leading in NAND-flash memory and solutions. Key developments include advancements in 3D NAND technology with BiCS3 (64 layers) and development of BiCS4 (96 layers). The company continues to manage its debt and expects to meet its working capital and capital expenditure needs from current cash flows and available credit facilities. Investors should note the significant debt burden and ongoing integration activities as key factors for consideration.

Financial Highlights

31 data points
Beta

Revenue

$19.09B

31.8% Gross Margin

Net Income

$397.00M

2.1% Net Margin

EPS (Diluted)

$1.34

Free Cash Flow

$2.86B

Financial Statements
Beta
Revenue$19.09B
Cost of Revenue$13.02B
Gross Profit$6.07B
SG&A Expenses$1.45B
Operating Expenses$4.12B
Operating Income$1.95B
Interest Expense$847.00M
Net Income$397.00M
EPS (Basic)$1.38
EPS (Diluted)$1.34
Shares Outstanding (Basic)288.00M
Shares Outstanding (Diluted)296.00M

Key Highlights

  • 1Revenue surged by 47% to $19.09 billion in fiscal year 2017, largely driven by the full-year consolidation of SanDisk's operations.
  • 2Gross margin improved to 31.8% from 26.4% in the prior year, aided by higher-margin NAND-flash products from the SanDisk acquisition and manufacturing efficiencies.
  • 3Operating income saw a significant increase, rising from $466 million in FY2016 to $1.95 billion in FY2017, reflecting strong revenue growth and operational improvements.
  • 4R&D and SG&A expenses increased significantly due to the SanDisk acquisition and ongoing technology development, impacting overall profitability.
  • 5Net income grew to $397 million ($1.34 diluted EPS) from $242 million ($1.00 diluted EPS) in the prior year, though substantially impacted by increased interest expenses from acquisition financing.
  • 6The company's debt level increased significantly due to the SanDisk acquisition, with total debt standing at $13.36 billion as of June 30, 2017.
  • 7Western Digital is advancing its NAND-flash technology with the introduction of 3D NAND (BiCS3) and development of the next generation (BiCS4).

Frequently Asked Questions

The primary driver of Western Digital's revenue growth in fiscal year 2017 was the full-year impact of the SanDisk acquisition, which was completed in May 2016. This acquisition significantly expanded the company's NAND-flash storage solutions portfolio and contributed substantially to the 47% year-over-year revenue increase.

The SanDisk acquisition positively impacted profitability through higher-margin NAND-flash products, leading to a significant increase in gross margin. However, it also led to increased operating expenses, particularly in Research & Development (R&D) and Selling, General, and Administrative (SG&A) costs, due to integration activities and expanded operations. Additionally, the debt incurred to finance the acquisition resulted in substantially higher interest expenses.

Western Digital's total debt stood at $13.36 billion as of June 30, 2017, a significant increase resulting from the financing of the SanDisk acquisition. The company stated that its current cash, cash equivalents, and cash generated from operations, along with available credit facilities, are expected to be sufficient to meet its working capital, debt, dividend, and capital expenditure needs for at least the next twelve months. However, the high debt level remains a key factor for investors to monitor.

The report highlights Western Digital's advancements in NAND-flash technology. Specifically, the company successfully introduced and commercialized 3-dimensional (3D) NAND technology, referred to as BiCS3, with 64 layers. They also successfully developed their next generation of 3D NAND, BiCS4, with 96 layers of vertical storage capability.