01—Abstract
Summary
Summary of the 10-K filed August 27, 2019. Cited figures are marked; the original filing is the authoritative source.
Western Digital Corporation (WDC) reported a net loss of $754 milliona for the fiscal year ended June 28, 2019, a significant downturn from the $675 million net income in the prior year.
This reversal was primarily driven by a substantial decrease in gross profit, which fell by 51% compared to fiscal year 2018. The decline in profitability was attributed to lower average selling prices (ASPs) for flash-based products due to oversupply and intense competition, coupled with significant charges. These charges included $264 millionb for flash manufacturing underutilization and $145 million related to a power outage incident.
Despite these challenges, the company emphasized its strong position in the data storage market, offering a broad portfolio of HDD and flash-based solutions across client devices, data centers, and client solutions segments. The company's strategy focuses on technology leadership, a broad product portfolio, and operational excellence. However, investors should note the significant debt level of $10.69 billionc, which could impact future financial flexibility and operations.
02—Key points
Key Highlights
- Net loss of $754 million for fiscal year 2019, a stark contrast to a $675 million net income in fiscal year 2018.
- Gross profit declined significantly by 51% year-over-year, largely due to lower ASPs in flash products and oversupply conditions.
- The company incurred substantial charges, including $264 million for flash manufacturing underutilization and $145 million due to a power outage incident impacting flash wafer production.
- Total debt stood at $10.69 billion as of June 28, 2019, raising concerns about financial leverage.
- Revenue decreased by 19.8% to $16.57 billion in fiscal year 2019, impacted by lower sales across all end markets.
- Western Digital highlighted its dual technology expertise in both Hard Disk Drives (HDDs) and flash-based storage, positioning it as a comprehensive data storage solutions provider.
- The company continues its strategic partnership with Toshiba Memory Corporation (TMC) for flash-based memory wafer manufacturing.
03—One dollar
Follow one dollar
For each $1.00 of revenue in FY2019, Western Digital Corp lost $0.05.
- Revenue$16.57B100.0%
- Cost of revenue−$12.82B77.4%
- Gross profit$3.75B22.6%
- Operating costs−$3.67B22.1%
- Operating income$87.0M0.5%
- Interest, other & tax−$841.0M5.1%
- Net income−$754.0M4.6%
Where FY2019 revenue went
$16.57B- Cost of revenue: $12.82B, 77% of revenue
- Other operating costs: $2.35B, 14% of revenue
- Operating income: $87.0M, 0.5% of revenue
- SG&A: $1.32B, 7.9% of revenue
Kept 0.5% as operating incomeOperating income $87.0M · 0.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed August 27, 2019Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $16.57B$20.65B | −19.8% |
| Cost of Revenue | $12.82B$12.94B | −1.0% |
| Gross Profit | $3.75B$7.71B | −51.3% |
| SG&A Expenses | $1.32B$1.47B | −10.6% |
| Operating Expenses | $3.67B$4.09B | −10.3% |
| Operating Income | $87.00M$3.62B | −97.6% |
| Interest Expense | $469.00M$676.00M | −30.6% |
| Net Income | -$754.00M$675.00M | −211.7% |
| EPS (Basic) | $-2.58$2.27 | −213.7% |
| EPS (Diluted) | $-2.58$2.20 | −217.3% |
| Shares Outstanding (Basic) | 292.00M297.00M | −1.7% |
| Shares Outstanding (Diluted) | 292.00M307.00M | −4.9% |
05—Questions
Frequently Asked Questions
What was Western Digital's financial performance in fiscal year 2019 compared to fiscal year 2018?
Western Digital experienced a significant financial downturn in fiscal year 2019, reporting a net loss of $754 million compared to a net income of $675 million in fiscal year 2018. This was driven by a 51% decrease in gross profit, primarily due to declining average selling prices for flash-based products, oversupply in the market, and significant charges related to manufacturing underutilization and a power outage incident. Revenue also decreased by 19.8% to $16.57 billion.
What are the key risks facing Western Digital as highlighted in the 10-K filing?
Key risks include intense competition in the highly cyclical storage industry, which leads to declining average selling prices (ASPs) and volatile demand. Significant reliance on the joint venture with Toshiba Memory Corporation (TMC) for flash-based memory supply introduces operational and strategic alignment risks. The company also faces risks related to rapid technological change, supply chain disruptions, dependence on key customers, and a substantial debt level of over $10 billion, which could impact financial flexibility.
How is Western Digital addressing the challenges in the flash market?
The company is taking several steps to address the challenges in the flash market. This includes temporarily reducing its utilization of Flash Ventures' manufacturing capacity to align supply with demand, which incurred costs. The company also incurred charges related to a power outage incident at its Yokkaichi facilities. To improve its cost structure, Western Digital implemented cost and expense reduction actions, including accelerating the closure of an HDD manufacturing facility and other measures expected to yield annualized savings of $800 million.
What is the company's outlook on its joint venture with Toshiba Memory Corporation (TMC)?
Western Digital continues its strategic partnership with TMC through their Flash Ventures joint ventures, which are critical for its flash-based memory wafer supply. The company is investing in new facilities, such as the K1 facility, to transition to newer technology nodes. However, this reliance also presents risks, including potential misalignment with TMC, financing challenges for capacity expansions, and obligations to cover fixed costs regardless of output, making the company susceptible to market fluctuations.
06—Continue