10-QPeriod: Q2 FY2013

WESTERN DIGITAL CORP Quarterly Report for Q2 Ended Dec 28, 2012

Filed February 1, 2013For Securities:WDC

Summary

Western Digital Corporation (WDC) reported its fiscal second quarter and year-to-date results for the period ending December 28, 2012. The company experienced a significant revenue increase of 92% year-over-year for the quarter and 68% for the six-month period, largely driven by the acquisition of Hitachi Global Storage Technologies (HGST). This acquisition significantly expanded WDC's market presence and product portfolio. While revenue surged, gross margin as a percentage of revenue decreased year-over-year for the quarter, influenced by the prior year's artificially high margins due to Thailand flood-related supply constraints. Operating expenses also increased due to the inclusion of HGST's operations and ongoing investments in R&D. Despite these factors, operating income saw a substantial increase due to the scale of the acquired business. The company also initiated a quarterly cash dividend policy and continued its share repurchase program, signaling a focus on returning capital to shareholders.

Financial Highlights

54 data points
Beta

Revenue

$3.82B

27.7% Gross Margin

Net Income

$335.00M

8.8% Net Margin

EPS (Diluted)

$1.36

Total Assets

$13.93B

Cash & Equivalents

$3.82B

Free Cash Flow

$526.00M

Financial Statements
Beta
Revenue$3.82B
Cost of Revenue$2.77B
Gross Profit$1.06B
SG&A Expenses$162.00M
Operating Expenses$581.00M
Operating Income$478.00M
Net Income$335.00M
EPS (Basic)$1.38
EPS (Diluted)$1.36
Shares Outstanding (Basic)242.00M
Shares Outstanding (Diluted)246.00M

Key Highlights

  • 1Net revenue for the second quarter increased by 92% to $3.8 billion compared to the prior-year period, primarily due to the HGST acquisition.
  • 2Total hard drive unit shipments for the quarter increased by 108% to 59.2 million units.
  • 3Gross margin percentage decreased to 27.7% in the quarter from 32.5% in the prior-year period, impacted by normalized industry supply conditions post-Thailand floods.
  • 4Operating income increased significantly to $478 million, up from $162 million in the prior year, reflecting the scale of the combined entity.
  • 5R&D expenses nearly doubled to $378 million for the quarter, driven by the inclusion of HGST's operations and continued investment.
  • 6The company generated $1.7 billion in net cash from operating activities for the six-month period, demonstrating strong operational cash flow.
  • 7Western Digital initiated a quarterly cash dividend policy and continued its share repurchase program, returning capital to shareholders.

Frequently Asked Questions

The primary driver of the significant revenue increase was the acquisition of Hitachi Global Storage Technologies (HGST), which closed on March 8, 2012. This acquisition substantially expanded Western Digital's operational scale and market reach, leading to a 92% year-over-year increase in net revenue for the quarter.

The decrease in gross margin percentage from 32.5% to 27.7% in the quarter was largely due to a comparison with the prior-year period, which benefited from unusually high average selling prices (ASPs) caused by supply constraints resulting from the Thailand floods. With supply chain normalization, margins reverted to more typical levels, which appeared as a decrease year-over-year.

The District Court of Hennepin County, Minnesota vacated the $630.4 million arbitration award against Western Digital. A rehearing has been ordered for certain trade secret claims before a new arbitrator. Seagate has appealed this decision, and Western Digital intends to vigorously oppose the appeal. The outcome remains uncertain and could potentially reinstate the original award.

California Proposition 39, approved in November 2012, affects state income tax apportionment. As a result, Western Digital recorded an $88 million charge to reduce its previously recognized California deferred tax assets as of December 28, 2012, anticipating a reduction in future income apportioned to California.