10-QPeriod: Q2 FY2020

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Oct 4, 2019

Filed November 12, 2019For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a net loss of $276 million for the three months ended October 4, 2019, a significant shift from the $511 million net income in the prior year's comparable quarter. This downturn was primarily driven by a 20% year-over-year decrease in net revenue, which fell to $4.04 billion. The decline in revenue is attributed to lower average selling prices across both hard disk drives (HDDs) and flash-based products, though higher HDD volumes and moderate growth in flash-based product volumes provided some offset. The company's gross profit saw a substantial decrease of 54% to $758 million, resulting in a gross margin compression to 18.8% from 33.1% in the prior year. This was impacted by lower revenues and an additional $68 million charge related to a power outage incident at Flash Ventures. While operating expenses saw some reductions, the overall decrease in revenue and gross profit led to an operating loss of $129 million, compared to an operating income of $686 million in the previous year.

Financial Highlights

56 data points
Beta

Revenue

$4.23B

22.1% Gross Margin

Net Income

-$139.00M

-3.3% Net Margin

EPS (Diluted)

$-0.47

Total Assets

$25.86B

Cash & Equivalents

$3.14B

Free Cash Flow

$97.00M

Financial Statements
Beta
Revenue$4.23B
Cost of Revenue$3.30B
Gross Profit$935.00M
SG&A Expenses$298.00M
Operating Expenses$885.00M
Operating Income$50.00M
Interest Expense$105.00M
Net Income-$139.00M
EPS (Basic)$-0.47
EPS (Diluted)$-0.47
Shares Outstanding (Basic)298.00M
Shares Outstanding (Diluted)298.00M

Key Highlights

  • 1Reported a net loss of $276 million for the quarter, a significant decrease from a $511 million net income in the prior year's quarter.
  • 2Net revenue declined 20% to $4.04 billion, primarily due to lower average selling prices (ASPs) across both HDDs and flash-based products.
  • 3Gross profit decreased 54% to $758 million, with gross margin shrinking to 18.8% from 33.1% year-over-year.
  • 4Operating loss of $129 million compared to an operating income of $686 million in the prior year.
  • 5Flash-based revenue saw a significant year-over-year decline, while HDD revenue experienced a slight decrease.
  • 6The company incurred a $68 million charge related to a power outage incident at Flash Ventures.
  • 7Cash flow from operating activities was $253 million, down from $705 million in the prior year, with the company expressing confidence in meeting short-term liquidity needs.

Frequently Asked Questions

The primary driver for the significant decline in net income, resulting in a net loss of $276 million, was a substantial decrease in revenue (down 20% to $4.04 billion) due to lower average selling prices across both HDD and flash-based products, coupled with a significant contraction in gross margin to 18.8%.

The power outage incident at Flash Ventures resulted in a $68 million charge recorded in cost of revenue for the quarter, primarily consisting of unabsorbed manufacturing overhead costs. This negatively impacted the company's gross profit and overall net income.

The company anticipates that flash pricing will improve during fiscal year 2020, as supply and demand are expected to become more aligned.

The company reported total debt of $10.37 billion and had $2.25 billion in borrowing availability under its revolving credit facility. Management believes its cash, cash equivalents, and cash generated from operations, along with available credit facilities, will be sufficient to meet working capital, debt, dividend, and capital expenditure needs for at least the next twelve months. The company also made a voluntary prepayment of $250 million on its U.S. Term Loan B-4 during the quarter.