10-KPeriod: FY2019

WESTERN DIGITAL CORP Annual Report, Year Ended Jun 28, 2019

Filed August 27, 2019For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a net loss of $754 million 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 million 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 billion, which could impact future financial flexibility and operations.

Financial Highlights

32 data points
Beta

Revenue

$16.57B

22.6% Gross Margin

Net Income

-$754.00M

-4.6% Net Margin

EPS (Diluted)

$-2.58

Free Cash Flow

$671.00M

Financial Statements
Beta
Revenue$16.57B
Cost of Revenue$12.82B
Gross Profit$3.75B
SG&A Expenses$1.32B
Operating Expenses$3.67B
Operating Income$87.00M
Interest Expense$469.00M
Net Income-$754.00M
EPS (Basic)$-2.58
EPS (Diluted)$-2.58
Shares Outstanding (Basic)292.00M
Shares Outstanding (Diluted)292.00M

Key Highlights

  • 1Net loss of $754 million for fiscal year 2019, a stark contrast to a $675 million net income in fiscal year 2018.
  • 2Gross profit declined significantly by 51% year-over-year, largely due to lower ASPs in flash products and oversupply conditions.
  • 3The company incurred substantial charges, including $264 million for flash manufacturing underutilization and $145 million due to a power outage incident impacting flash wafer production.
  • 4Total debt stood at $10.69 billion as of June 28, 2019, raising concerns about financial leverage.
  • 5Revenue decreased by 19.8% to $16.57 billion in fiscal year 2019, impacted by lower sales across all end markets.
  • 6Western 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.
  • 7The company continues its strategic partnership with Toshiba Memory Corporation (TMC) for flash-based memory wafer manufacturing.

Frequently Asked Questions

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.

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.

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.

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.