10-QPeriod: Q2 FY2015

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Oct 3, 2014

Filed November 4, 2014For Securities:WDC

Summary

Western Digital Corporation (WDC) reported strong financial results for the first quarter of fiscal year 2015, with net revenue reaching $3.9 billion, a 4% increase year-over-year. This growth was driven by a 3% increase in hard drive unit shipments to 64.7 million units and stable average selling prices. The company continues to diversify its revenue away from the PC market, with 55% now derived from non-PC segments like enterprise and consumer electronics, and enterprise SSD revenue showing significant growth at $156 million. Operationally, WDC maintained a healthy gross margin of 29.1% and generated a robust $827 million in cash flow from operations, ending the quarter with a strong cash position of $5.2 billion. While R&D expenses increased due to acquisitions and a longer reporting period, the company demonstrated effective cost management in other areas. A significant event during the quarter was the payment of $773.4 million to Seagate to satisfy an arbitration award, impacting financing activities.

Financial Highlights

54 data points
Beta

Revenue

$3.89B

28.5% Gross Margin

Net Income

$438.00M

11.3% Net Margin

EPS (Diluted)

$1.84

Total Assets

$15.14B

Cash & Equivalents

$4.90B

Free Cash Flow

$97.00M

Financial Statements
Beta
Revenue$3.89B
Cost of Revenue$2.78B
Gross Profit$1.11B
SG&A Expenses$164.00M
Operating Expenses$644.00M
Operating Income$466.00M
Net Income$438.00M
EPS (Basic)$1.88
EPS (Diluted)$1.84
Shares Outstanding (Basic)233.00M
Shares Outstanding (Diluted)238.00M

Key Highlights

  • 1Net revenue increased 4% year-over-year to $3.9 billion, driven by higher hard drive unit shipments.
  • 2Diversification towards non-PC markets continues, with 55% of revenue now from enterprise and consumer electronics.
  • 3Enterprise SSD revenue grew to $156 million, indicating strong performance in this segment.
  • 4Gross margin improved slightly to 29.1% compared to the prior year.
  • 5Generated a strong $827 million in cash flow from operations.
  • 6Ended the quarter with a substantial cash and cash equivalents balance of $5.2 billion.
  • 7Made a significant payment of $773.4 million related to an arbitration award.

Frequently Asked Questions

Western Digital reported a 4% increase in net revenue to $3.9 billion for the first quarter of fiscal year 2015 compared to the prior year. Gross profit also increased by 5% to $1.1 billion, leading to a gross margin of 29.1%. Net income was $423 million, down from $495 million in the prior year, partly due to increased operating expenses and the arbitration award payment.

Western Digital is successfully shifting its revenue away from the traditional PC market. Non-PC markets, including enterprise, branded products, and consumer electronics, now account for 55% of net revenue, up from 53% in the prior year. This diversification is a key strategic initiative to reduce reliance on the declining PC sector.

The company maintains a strong liquidity position. Cash and cash equivalents totaled $5.2 billion at the end of the quarter. Long-term debt stood at $2.4 billion related to a credit agreement entered into in January 2014. The company generated $827 million in operating cash flow, indicating healthy cash generation capabilities to meet its obligations and capital needs.

The most significant event was the payment of $773.4 million to Seagate to satisfy a final arbitration award, which occurred shortly after the quarter ended but was a result of an October 8, 2014 court decision. This payment was made using cash held outside the United States. The company also reported ongoing legal proceedings, though most are not expected to have a material impact.