10-QPeriod: Q3 FY2011

WESTERN DIGITAL CORP Quarterly Report for Q3 Ended Apr 1, 2011

Filed May 2, 2011For Securities:WDC

Summary

Western Digital Corporation (WDC) reported its third quarter fiscal year 2011 results, showing a decline in revenue and gross margin compared to the prior year. Revenue decreased by 15% to $2.3 billion for the quarter, primarily driven by a lower average selling price (ASP) of hard drives and a slight decrease in unit shipments. Gross margin contracted significantly to 18.2% from 25.2% in the prior year, attributed to a competitive pricing environment. The company is actively pursuing a major strategic initiative with the announcement of its planned acquisition of Hitachi Global Storage Technologies (HGST) for approximately $4.3 billion, to be funded by cash, debt, and new stock issuance. This acquisition is expected to create a more efficient and innovative storage company with a broader product lineup. Management highlighted that the planned acquisition incurred $10 million in expenses during the quarter, impacting operating income. Despite the revenue and margin pressures, WDC maintained a strong cash position, ending the quarter with $3.2 billion in cash and cash equivalents, supported by $1.2 billion in operating cash flow for the nine-month period.

Financial Highlights

49 data points
Beta

Revenue

$2.25B

18.2% Gross Margin

Net Income

$146.00M

6.5% Net Margin

EPS (Diluted)

$0.62

Total Assets

$7.84B

Cash & Equivalents

$3.23B

Free Cash Flow

$138.00M

Financial Statements
Beta
Revenue$2.25B
Cost of Revenue$1.84B
Gross Profit$410.00M
SG&A Expenses$73.00M
Operating Expenses$252.00M
Operating Income$158.00M
Net Income$146.00M
EPS (Basic)$0.63
EPS (Diluted)$0.62
Shares Outstanding (Basic)232.00M
Shares Outstanding (Diluted)236.00M

Key Highlights

  • 1Revenue for the quarter decreased 15% year-over-year to $2.3 billion, driven by lower average selling prices (ASP) and slightly lower unit shipments.
  • 2Gross margin declined significantly to 18.2% from 25.2% in the prior year, primarily due to a competitive pricing environment.
  • 3The company announced a significant strategic move with the planned acquisition of Hitachi Global Storage Technologies (HGST) for approximately $4.3 billion.
  • 4Acquisition-related expenses of $10 million were incurred during the quarter, impacting operating income.
  • 5Operating income saw a substantial decrease of $283 million year-over-year, reflecting lower gross margins and increased operating expenses.
  • 6Western Digital maintained a strong liquidity position, ending the quarter with $3.2 billion in cash and cash equivalents.
  • 7The company is increasing investment in Research & Development (R&D) by $19 million year-over-year to support new product development.

Frequently Asked Questions

The primary driver for the decline in gross margin to 18.2% from 25.2% in the prior year was a competitive pricing environment in the hard drive industry, leading to lower average selling prices (ASP).

Western Digital announced on March 7, 2011, a definitive agreement to acquire Hitachi Global Storage Technologies (HGST) for approximately $4.3 billion. The acquisition is subject to customary closing conditions, including regulatory approvals, and is expected to close in the first quarter of fiscal 2012. Regulatory review is ongoing, as evidenced by a second request from the U.S. Federal Trade Commission (FTC).

The acquisition is planned to be financed through a combination of existing cash on hand, new debt financing (a new credit facility of up to $3.0 billion is being arranged), and the issuance of 25 million shares of Western Digital's common stock. This use of stock will dilute existing shareholders' ownership.

Management expects net revenue for the June quarter to be flat to slightly down compared to the March quarter. This outlook is influenced by anticipated supply constraints in the hard drive industry due to the earthquake in Japan and related events, although they are planning for a seasonally normal June quarter.