10-QPeriod: Q3 FY2014

WESTERN DIGITAL CORP Quarterly Report for Q3 Ended Mar 28, 2014

Filed May 5, 2014For Securities:WDC

Summary

Western Digital Corporation (WDC) reported its third-quarter fiscal year 2014 results for the period ending March 28, 2014. The company generated $3.7 billion in net revenue, a slight decrease of 2% year-over-year, primarily attributed to a decline in average selling prices, which was partially offset by a modest increase in hard drive unit shipments. Gross margin saw a slight improvement to 28.6% from 28.2% in the prior year, driven by a more favorable product mix. The company's strategic shift towards non-PC markets, including enterprise applications and branded products, continued, with these segments now representing 53% of net revenue, up from 51% in the prior year. Net income for the quarter was $375 million, or $1.55 per diluted share. Financially, WDC ended the quarter with a strong liquidity position, holding $4.6 billion in cash and cash equivalents. The company also announced a new $4.0 billion credit agreement, providing robust financial flexibility. However, significant litigation related to a trade secret dispute with Seagate continues to be a notable factor, with an accrual of $745 million recorded. The company also reported increased R&D expenses, partly due to recent acquisitions of Virident and sTec, indicating continued investment in future technologies.

Financial Highlights

54 data points
Beta

Revenue

$3.70B

29.1% Gross Margin

Net Income

$375.00M

10.1% Net Margin

EPS (Diluted)

$1.55

Total Assets

$15.33B

Cash & Equivalents

$4.57B

Free Cash Flow

$537.00M

Financial Statements
Beta
Revenue$3.70B
Cost of Revenue$2.63B
Gross Profit$1.08B
SG&A Expenses$201.00M
Operating Expenses$657.00M
Operating Income$419.00M
Net Income$375.00M
EPS (Basic)$1.60
EPS (Diluted)$1.55
Shares Outstanding (Basic)235.00M
Shares Outstanding (Diluted)242.00M

Key Highlights

  • 1Net revenue for the quarter was $3.7 billion, down 2% year-over-year, impacted by lower average selling prices.
  • 2Gross margin improved to 28.6% from 28.2% in the prior year, driven by product mix.
  • 3Non-PC markets represented 53% of revenue, an increase from 51% in the prior year, highlighting a strategic shift.
  • 4Net income was $375 million, translating to $1.55 in diluted earnings per share.
  • 5The company maintained a strong balance sheet with $4.6 billion in cash and cash equivalents.
  • 6A significant accrual of $745 million was recorded related to the ongoing arbitration award from the Seagate litigation.
  • 7Research and development expenses increased, reflecting investments in acquisitions (Virident, sTec) and ongoing innovation.

Frequently Asked Questions

Western Digital reported net revenue of $3.7 billion for the third quarter of fiscal 2014. This represents a 2% decrease compared to the same period in the prior year. The decrease was primarily due to lower average selling prices, partially offset by an increase in hard drive unit shipments.

Gross profit remained relatively stable at $1.06 billion, with gross margin slightly improving to 28.6% from 28.2% in the prior year, mainly due to a favorable change in product mix. Net income was $375 million, resulting in diluted earnings per share of $1.55.

The Seagate arbitration matter involves claims of misappropriation of confidential information and trade secrets. While legal proceedings and appeals are ongoing, the company has recorded an accrual of $745 million as of March 28, 2014, representing the final arbitration award plus accrued interest. This accrual reflects the uncertainty and potential financial exposure related to this litigation.

Western Digital acquired Virident Systems, Inc. on October 17, 2013, and sTec, Inc. on September 12, 2013. These acquisitions are integrated into the HGST subsidiary and are intended to strengthen the company's presence in enterprise storage solutions, particularly in solid-state drives. While the acquired companies' results are included post-acquisition, their impact on the consolidated financial statements for the three and nine months ended March 28, 2014, was not material according to the filing. R&D and SG&A expenses did increase, partly due to the inclusion of these acquired entities.