10-QPeriod: Q3 FY2006

WESTERN DIGITAL CORP Quarterly Report for Q3 Ended Mar 31, 2006

Filed May 9, 2006For Securities:WDC

Summary

Western Digital Corporation (WDC) reported strong financial performance for the third quarter of fiscal year 2006, driven by a 23% increase in net revenue year-over-year, reaching $1.13 billion. This growth was fueled by increased unit shipments and a strategic shift towards non-desktop PC markets, which now represent 29% of revenue, up from 23% in the prior year. The company also demonstrated improved profitability, with gross margin increasing to 19.3% due to manufacturing efficiencies and quality enhancements, leading to a significant rise in operating income and net income. The company's balance sheet shows healthy growth in total assets to $1.93 billion, with a substantial increase in cash and cash equivalents to $543.4 million. WDC continues to invest in its future through capital expenditures, primarily focused on advanced head technologies and new product platforms. The company provided a cautious outlook for the fourth quarter, anticipating revenue between $1.05 billion and $1.10 billion, reflecting typical seasonal industry trends.

Key Highlights

  • 1Net revenue increased by 23% year-over-year to $1.13 billion for the third quarter of fiscal year 2006.
  • 2Revenue from non-desktop PC sources (CE, enterprise, notebook, branded products) increased to 29% of total revenue, up from 23% in the prior year.
  • 3Gross margin improved to 19.3% from 18.2% year-over-year, driven by manufacturing efficiencies and quality improvements.
  • 4Operating income rose to $100.7 million, with operating margins increasing to 8.9% from 7.7% in the prior year.
  • 5Net income for the quarter was $102.9 million, a significant increase from $70.8 million in the prior year.
  • 6Cash, cash equivalents, and short-term investments stood at $674 million at the end of the quarter, an increase of $76 million from the prior fiscal year's end.
  • 7The company repurchased 0.9 million shares of common stock for $17.5 million during the quarter.

Frequently Asked Questions

The primary driver of Western Digital's revenue growth was a 23% increase in net revenue, reaching $1.13 billion. This was achieved through a 22.9% increase in unit shipments and a strategic expansion into non-desktop PC markets, including consumer electronics, enterprise, notebook computers, and branded products.

Profitability improved significantly. Gross margin increased to 19.3% from 18.2% in the prior year, attributed to ongoing manufacturing efficiencies and quality improvements. Operating income rose by $30 million to $100.7 million, and net income increased to $102.9 million from $70.8 million in the comparable period of the prior year.

Western Digital anticipates a seasonal slowdown in demand for the fourth quarter. Revenue is estimated to be between $1.05 billion and $1.10 billion, with an estimated gross margin percentage of approximately 18%. Operating expenses are projected to be around $117 million, and diluted earnings per share are expected to be in the range of $0.32 to $0.36.

The company ended the quarter with $674 million in cash, cash equivalents, and short-term investments, an increase of $76 million from the end of the previous fiscal year. Net cash provided by operating activities was $275 million for the first nine months of fiscal year 2006. Capital expenditures were approximately $206 million for the same period, primarily for upgrading manufacturing capabilities and investing in new technologies.