10-QPeriod: Q2 FY2021

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Oct 2, 2020

Filed November 6, 2020For Securities:WDC

Summary

Western Digital Corporation (WDC) reported its financial results for the quarter ending October 2, 2020. The company saw a decrease in revenue year-over-year, primarily driven by lower volumes of HDD products and competitive pricing across both HDD and flash products. However, there was a notable increase in Client Devices revenue, benefiting from strong demand for SSDs due to work-from-home and remote learning trends, as well as growth in the gaming sector. While the company experienced a net loss for the quarter, this was an improvement compared to the prior year's loss, aided by a reduction in operating expenses, particularly in selling, general, and administrative costs, partly due to COVID-19 related savings and business realignment. The company generated positive cash flow from operations, supporting its liquidity position. WDC also highlighted strategic initiatives, including a planned reorganization into two separate product business units (flash-based products and HDDs) to enhance focus and accountability, and continued investment in manufacturing facilities through its Flash Ventures joint venture.

Financial Highlights

56 data points
Beta

Revenue

$3.94B

24.3% Gross Margin

Net Income

$62.00M

1.6% Net Margin

EPS (Diluted)

$0.20

Total Assets

$25.55B

Cash & Equivalents

$2.96B

Free Cash Flow

$186.00M

Financial Statements
Beta
Revenue$3.94B
Cost of Revenue$2.98B
Gross Profit$960.00M
SG&A Expenses$265.00M
Operating Expenses$802.00M
Operating Income$158.00M
Interest Expense$81.00M
Net Income$62.00M
EPS (Basic)$0.20
EPS (Diluted)$0.20
Shares Outstanding (Basic)305.00M
Shares Outstanding (Diluted)307.00M

Key Highlights

  • 1Revenue decreased by 3% to $3.92 billion compared to the prior year's quarter, primarily due to lower HDD volumes and pricing pressures.
  • 2Gross profit increased by 19% to $904 million, and gross margin improved by approximately 4 percentage points year-over-year, driven by a favorable comparison to prior year charges and reduced manufacturing costs.
  • 3Net loss narrowed significantly to $60 million ($0.20 per share) from a loss of $276 million ($0.93 per share) in the prior year's comparable quarter.
  • 4Operating expenses decreased by 6%, with notable reductions in SG&A, partly attributed to COVID-19 related cost savings and business realignment efforts.
  • 5Client Devices revenue saw a substantial 20% increase year-over-year, driven by strong SSD demand for client compute and growth in the gaming segment.
  • 6Data Center Devices & Solutions revenue declined by 26%, reflecting customer absorption of recent purchases and ongoing new product transitions.
  • 7The company generated $363 million in cash flow from operating activities, demonstrating operational cash generation capabilities.

Frequently Asked Questions

The primary drivers for the revenue decline were lower volumes of Hard Disk Drive (HDD) products and competitive pricing pressures affecting both HDD and flash-based products. These factors were partially offset by higher volumes of flash products, particularly in the Client Devices segment.

Operating expenses decreased by 6% year-over-year. Significant reductions were seen in Selling, General, and Administrative (SG&A) expenses, partly due to cost savings related to the COVID-19 pandemic (e.g., reduced travel and entertainment) and business realignment initiatives, including savings from exiting the storage systems business.

Flash Ventures, a joint venture with Kioxia Corporation, continues to be a significant part of WDC's operations. The company is making ongoing investments in manufacturing facilities, including new facilities like 'K1' and the commencement of construction for 'Y7'. WDC also incurred charges related to a 2019 power outage incident at Yokkaichi and received a partial insurance recovery in the current quarter.

No, Western Digital suspended its quarterly cash dividend in April 2020. The company stated this decision was made to reinvest in the business and support ongoing deleveraging efforts. They plan to reevaluate the dividend policy as their leverage ratio improves.