10-QPeriod: Q2 FY2011

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Oct 1, 2010

Filed October 29, 2010For Securities:WDC

Summary

Western Digital Corporation (WDC) reported its first quarter fiscal year 2011 results, ending October 1, 2010. The company saw a year-over-year increase in net revenue of 9% to $2.4 billion, driven by a 15% rise in hard drive unit shipments to 50.7 million units. This growth was primarily fueled by non-desktop markets, which accounted for 64% of hard drive revenue, indicating a strategic shift towards more diverse applications. Despite the top-line growth, profitability was impacted by a significant decrease in gross margin to 18.2% from 23.3% in the prior year, attributed to an aggressive pricing environment throughout the quarter. Operating income also saw a substantial decline. However, the company maintained a strong liquidity position, ending the quarter with $2.9 billion in cash and cash equivalents, and generated $390 million in cash flow from operations, demonstrating its ability to manage its finances effectively amidst competitive market conditions.

Financial Statements
Beta

Key Highlights

  • 1Net revenue increased by 9% year-over-year to $2.4 billion, driven by higher unit shipments.
  • 2Hard drive unit shipments grew by 15% year-over-year to 50.7 million units.
  • 3Non-desktop markets (notebooks, CE, enterprise, WD-branded products) represented 64% of hard drive revenue, highlighting diversification.
  • 4Gross margin decreased significantly to 18.2% from 23.3% in the prior year, largely due to competitive pricing pressures.
  • 5Operating income decreased by $108 million compared to the prior-year period.
  • 6The company ended the quarter with a strong cash position of $2.9 billion.
  • 7Generated $390 million in cash flow from operations during the quarter.

Frequently Asked Questions

The primary driver for the revenue increase was a significant rise in hard drive unit shipments, which grew by 15% year-over-year to 50.7 million units. This increase was largely attributed to strong performance in non-desktop markets.

The gross margin decreased from 23.3% to 18.2% primarily due to an aggressive pricing environment that persisted throughout the quarter. This indicates increased competition and a need to lower prices to maintain market share.

Western Digital ended the quarter with a robust $2.9 billion in cash and cash equivalents. The company generated $390 million in cash flow from operations, indicating a healthy ability to fund its working capital and capital expenditure needs.

The company is involved in several legal proceedings, including intellectual property litigation and employment-related class action lawsuits. While a class action settlement was preliminarily approved, the outcomes of other cases are uncertain, and potential liabilities could differ from management's estimates, though the company intends to defend itself vigorously.