10-QPeriod: Q1 FY2013

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Sep 28, 2012

Filed November 2, 2012For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a significant increase in revenue and profitability for the first quarter of fiscal year 2013, driven primarily by the successful integration of the HGST acquisition and a substantial rise in the average selling price (ASP) of its hard drives. Net revenue grew by 50% year-over-year to $4.0 billion, with gross margin improving to 29.6% from 20.1% in the prior year period, reflecting higher ASPs, partly due to the lingering effects of the Thailand flooding on supply. The company also generated strong operating cash flow of $936 million. Key strategic developments include the ongoing integration of HGST, which is proceeding under certain regulatory conditions requiring HGST to remain an independent competitor. While this limits immediate synergy realization, management is focused on long-term integration benefits. The company also announced a new quarterly cash dividend policy and continued its share repurchase program, indicating a commitment to returning capital to shareholders. Despite a challenging demand environment, evidenced by a sequential decline in industry shipments, WDC's diversified revenue streams and strategic moves position it for continued performance.

Financial Highlights

54 data points
Beta

Revenue

$4.04B

29.6% Gross Margin

Net Income

$519.00M

12.9% Net Margin

EPS (Diluted)

$2.06

Total Assets

$14.17B

Cash & Equivalents

$3.54B

Free Cash Flow

$554.00M

Financial Statements
Beta
Revenue$4.04B
Cost of Revenue$2.84B
Gross Profit$1.19B
SG&A Expenses$179.00M
Operating Expenses$601.00M
Operating Income$592.00M
Net Income$519.00M
EPS (Basic)$2.11
EPS (Diluted)$2.06
Shares Outstanding (Basic)246.00M
Shares Outstanding (Diluted)252.00M

Key Highlights

  • 1Revenue increased 50% year-over-year to $4.0 billion, largely due to the HGST acquisition and higher average selling prices (ASPs) for hard drives.
  • 2Gross margin improved significantly to 29.6% from 20.1% in the prior year, driven by higher ASPs.
  • 3Operating income more than doubled to $592 million, despite $26 million in employee termination benefits.
  • 4Generated strong operating cash flow of $936 million, demonstrating effective cash generation.
  • 5Ended the quarter with a healthy cash and cash equivalents balance of $3.5 billion.
  • 6Announced a new quarterly cash dividend policy and continued share repurchases, signaling confidence and commitment to shareholder returns.
  • 7Unit shipments increased 8% year-over-year to 62.5 million units, indicating continued demand for WDC's core products.

Frequently Asked Questions

The acquisition of HGST significantly boosted Western Digital's revenue, contributing to the 50% year-over-year increase to $4.0 billion. While the integration is proceeding under regulatory conditions that limit immediate synergy realization, HGST's operations are now included in WDC's financial statements, impacting revenue, cost of revenue, and operating expenses.

The increase in ASP is attributed to a combination of factors, including a favorable product mix and the continued impact of the Thailand flooding in late 2011, which constrained supply and allowed for higher pricing. This trend helped offset some of the industry's overall demand softness.

Western Digital expects overall hard drive industry shipments to remain flat compared to the September quarter. However, the company anticipates its own revenue to decrease from the September quarter due to muted demand, seasonal reductions in its gaming business, and a planned decrease in 3.5-inch hard drive shipments to Toshiba as part of a divestiture agreement.

Key ongoing matters include litigation, notably the Seagate arbitration case which has seen the vacation of a large award and is subject to appeal and potential rehearing. Additionally, the company is undergoing IRS examinations concerning transfer pricing and other intercompany transactions. Regulatory conditions from the HGST acquisition, specifically requiring HGST to operate independently, also present ongoing operational considerations.