01—Abstract
Summary
Summary of the 10-K filed August 24, 2018. Cited figures are marked; the original filing is the authoritative source.
Western Digital Corporation (WDC) reported solid financial performance for the fiscal year ended June 29, 2018.
The company experienced revenue growth across all its key end markets: Client Devices, Data Center Devices and Solutions, and Client Solutions. This growth was driven by strong demand for flash-based products and capacity enterprise HDDs, coupled with ongoing improvements in production costs from technology transitions. Despite a significant loss on debt extinguishment and a substantial provisional tax expense related to the Tax Cuts and Jobs Act of 2017, the company's net income saw an increase compared to the previous fiscal year.
WDC also continued its shareholder return program through dividends and share repurchases, demonstrating a commitment to capital allocation. However, investors should note the company's significant debt load and the ongoing risks associated with its joint venture with Toshiba Memory Corporation (TMC), including potential supply disruptions and strategic misalignments. The company also faces intense competition and rapid technological change in the data storage industry.
02—Key points
Key Highlights
- Net revenue increased by 8% year-over-year to $20.65 billion, driven by growth across all end markets.
- Gross profit increased by 27% to $7.71 billion, with gross margin improving to 37.3% from 31.8% in the prior year.
- The company recognized a provisional income tax expense of $1.57 billion related to the Tax Cuts and Jobs Act of 2017, significantly impacting net income.
- Total debt remained substantial at $11.38 billion, although the company took steps to refinance and reduce its overall interest cost.
- WDC repurchased $591 million of its common stock and paid $592 million in dividends during the fiscal year, continuing its shareholder return initiatives.
- The company highlighted ongoing investments in flash technologies and acknowledged expected declines in flash memory gross margins in fiscal year 2019 due to increasing supply.
- Key risks identified include dependence on the Toshiba Memory Corporation (TMC) joint venture, intense industry competition, and rapid technological obsolescence.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, Western Digital Corp kept $0.03.
- Revenue$20.65B100.0%
- Cost of revenue−$12.94B62.7%
- Gross profit$7.71B37.3%
- Operating costs−$4.09B19.8%
- Operating income$3.62B17.5%
- Interest, other & tax−$2.94B14.2%
- Net income$675.0M3.3%
Where FY2018 revenue went
$20.65B- Cost of revenue: $12.94B, 63% of revenue
- Interest, other & tax: $2.94B, 14% of revenue
- Other operating costs: $2.62B, 13% of revenue
- Net income: $675.0M, 3.3% of revenue
- SG&A: $1.47B, 7.1% of revenue
Kept 3.3% as net incomeNet income $675.0M · 3.3%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed August 24, 2018Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $20.65B$19.09B | +8.1% |
| Cost of Revenue | $12.94B$13.02B | −0.6% |
| Gross Profit | $7.71B$6.07B | +26.9% |
| SG&A Expenses | $1.47B$1.45B | +1.9% |
| Operating Expenses | $4.09B$4.12B | −0.7% |
| Operating Income | $3.62B$1.95B | +85.1% |
| Interest Expense | $676.00M$847.00M | −20.2% |
| Net Income | $675.00M$397.00M | +70.0% |
| EPS (Basic) | $2.27$1.38 | +64.5% |
| EPS (Diluted) | $2.20$1.34 | +64.2% |
| Shares Outstanding (Basic) | 297.00M288.00M | +3.1% |
| Shares Outstanding (Diluted) | 307.00M296.00M | +3.7% |
05—Questions
Frequently Asked Questions
What was Western Digital's revenue performance in fiscal year 2018?
Western Digital reported a net revenue of $20.65 billion for the fiscal year ended June 29, 2018, representing an 8% increase compared to the previous year. This growth was observed across all its major end markets: Client Devices, Data Center Devices and Solutions, and Client Solutions.
How did the Tax Cuts and Jobs Act of 2017 impact Western Digital's financial results?
The Tax Cuts and Jobs Act of 2017 resulted in a significant provisional income tax expense of $1.57 billion for Western Digital, primarily due to a one-time mandatory deemed repatriation tax on foreign earnings. This significantly impacted the company's reported net income for the fiscal year.
What are the key risks facing Western Digital, as highlighted in the filing?
Key risks include significant dependence on its joint venture with Toshiba Memory Corporation (TMC) for flash-based memory supply and technology development, which carries risks of supply disruption and strategic misalignment. The company also operates in a highly competitive industry subject to volatile demand, rapid technological change, and potential price erosion. Additionally, the company carries a substantial amount of debt, which could impact its financial flexibility.
How is Western Digital managing its debt and returning capital to shareholders?
Western Digital refinanced and repaid a significant portion of its debt during the fiscal year to lower interest costs and extend maturities. The company continued its capital return program by paying $592 million in dividends and repurchasing $591 million of its common stock, with a new $5 billion repurchase program authorized.
06—Continue