10-QPeriod: Q1 FY2012

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Sep 30, 2011

Filed October 28, 2011For Securities:WDC

Summary

Western Digital Corporation (WDC) reported robust revenue growth in the first quarter of fiscal year 2012, with net revenue reaching $2.7 billion, a 12% increase year-over-year, driven by a 14% rise in hard drive unit shipments to 57.8 million units. The company also demonstrated improved profitability, with gross margin increasing to 20.1% from 18.2% in the prior year, primarily attributed to a more favorable product mix. Despite these positive operational results, investors should be aware of significant emerging challenges. The company is facing severe disruptions due to widespread flooding in Thailand, impacting a substantial portion of its manufacturing operations, including critical slider fabrication facilities. This event is expected to lead to significant supply constraints, negative gross margins, and substantial losses in the upcoming quarters. Additionally, the planned acquisition of Hitachi Global Storage Technologies (HGST) for approximately $4.2 billion is progressing, but remains subject to regulatory approvals and carries integration risks. The company's liquidity remains strong with $3.7 billion in cash and cash equivalents, although future cash flows are expected to be negatively impacted by the Thailand floods.

Financial Highlights

50 data points
Beta

Revenue

$2.69B

20.1% Gross Margin

Net Income

$239.00M

8.9% Net Margin

EPS (Diluted)

$1.01

Total Assets

$8.47B

Cash & Equivalents

$3.67B

Free Cash Flow

$218.00M

Financial Statements
Beta
Revenue$2.69B
Cost of Revenue$2.15B
Gross Profit$541.00M
SG&A Expenses$89.00M
Operating Expenses$282.00M
Operating Income$259.00M
Net Income$239.00M
EPS (Basic)$1.03
EPS (Diluted)$1.01
Shares Outstanding (Basic)233.00M
Shares Outstanding (Diluted)237.00M

Key Highlights

  • 1Revenue increased 12% year-over-year to $2.7 billion, driven by a 14% increase in hard drive unit shipments.
  • 2Gross margin improved to 20.1% from 18.2% in the prior year, attributed to an improved product mix.
  • 3The company suspended production in its Thailand facilities due to severe flooding, which is expected to significantly impact future operations, supply, and profitability.
  • 4The planned acquisition of Hitachi Global Storage Technologies (HGST) for $4.2 billion is ongoing, subject to regulatory approvals.
  • 5Operating income increased to $259 million, but included $11 million in acquisition-related expenses and $7 million for litigation contingencies.
  • 6Cash and cash equivalents remained strong at $3.7 billion, although future operating cash flow is expected to be negatively affected by the Thailand flooding.

Frequently Asked Questions

The severe flooding in Thailand has inundated Western Digital's manufacturing facilities, including critical slider fabrication plants and hard drive assembly operations. This has led to a suspension of production and is causing significant shortages of key components, impacting the company's ability to meet customer demand. The company anticipates this will result in supply constraints, negative gross margins, and significant losses in the near term.

Western Digital is proceeding with the acquisition of HGST, valued at approximately $4.2 billion. The transaction is subject to various closing conditions, including regulatory approvals from multiple international authorities. While some approvals have been obtained, the company is actively working with regulators, including proposing remedies to the European Commission, to secure the remaining approvals. The target closing date is the second quarter of fiscal year 2012.

As of September 30, 2011, Western Digital had $3.7 billion in cash and cash equivalents. While the company anticipates a negative impact on future operating cash flows due to the Thailand flooding, including significant unusual charges and potential capital expenditure increases for facility restoration, it believes its current cash position and anticipated cash generation will be sufficient to meet its working capital and capital expenditure needs for the next 12 months, including funding the cash portion of the HGST acquisition.

In the first quarter of fiscal 2012, Western Digital reported net revenue of $2.7 billion, up 12% year-over-year. Hard drive unit shipments increased by 14% to 57.8 million units. Gross margin improved to 20.1%, and operating income rose to $259 million. Net income was $232 million, or $1.01 per diluted share.