10-QPeriod: Q2 FY2022

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Oct 1, 2021

Filed November 4, 2021For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a strong second quarter of fiscal year 2022, with net revenue significantly increasing by 29% to $5.05 billion compared to the prior year. This growth was driven by a substantial increase in exabytes sold for both Hard Disk Drives (HDD) and Flash products, particularly in the Cloud and Client end markets. The company achieved a notable improvement in profitability, with operating income soaring to $778 million from $70 million in the prior year, and net income reaching $610 million, a dramatic turnaround from a net loss of $60 million in the same period last year. The company's strategic shift to two distinct operating segments (HDD and Flash) and refined end-market reporting (Cloud, Client, Consumer) appears to be yielding positive results. Gross margin also saw a significant expansion to 33.0% from 23.0% year-over-year, fueled by cost reductions and improved product mix. Despite ongoing supply chain disruptions impacting the industry, WDC demonstrated resilience and a positive outlook, anticipating continued revenue growth driven by new product introductions and market trends like 5G adoption.

Financial Highlights

53 data points
Beta

Revenue

$4.83B

32.8% Gross Margin

Net Income

$564.00M

11.7% Net Margin

EPS (Diluted)

$1.79

Total Assets

$26.02B

Cash & Equivalents

$2.53B

Free Cash Flow

$360.00M

Financial Statements
Beta
Revenue$4.83B
Cost of Revenue$3.25B
Gross Profit$1.58B
SG&A Expenses$279.00M
Operating Expenses$856.00M
Operating Income$727.00M
Interest Expense$76.00M
Net Income$564.00M
EPS (Basic)$1.81
EPS (Diluted)$1.79
Shares Outstanding (Basic)312.00M
Shares Outstanding (Diluted)315.00M

Key Highlights

  • 1Net revenue surged 29% year-over-year to $5.05 billion, driven by increased exabyte shipments in both HDD and Flash segments.
  • 2Operating income dramatically increased to $778 million from $70 million in the prior year, reflecting strong revenue growth and improved operational efficiencies.
  • 3Net income turned positive at $610 million, a significant improvement from a net loss of $60 million in the same quarter last year.
  • 4Gross margin expanded substantially to 33.0% from 23.0% year-over-year, indicating better pricing power and cost management.
  • 5The company successfully reorganized into two reportable segments: HDD and Flash, with refined end-market reporting (Cloud, Client, Consumer).
  • 6Cash flow from operating activities remained strong, providing $521 million in cash, indicating healthy core business operations.
  • 7Despite industry-wide supply chain disruptions, WDC expects continued revenue growth supported by new product qualifications and market demand.

Frequently Asked Questions

The primary drivers for the 29% revenue increase were a substantial rise in the volume of exabytes sold for both Hard Disk Drives (HDD) and Flash products. This growth was particularly strong in the Cloud end market, driven by demand for energy-assisted drives and enterprise SSDs, and in the Client market, fueled by demand in mobile (especially 5G phones) and gaming.

Profitability saw a significant improvement due to a combination of factors. Revenue growth, higher gross margins resulting from cost reductions and product mix optimization, and a slight increase in operating expenses that were outpaced by revenue growth, all contributed to the substantial increase in operating income and the swing from a net loss to a net profit.

The company highlighted ongoing supply chain disruptions that have impacted both their operations and their customers' ability to manufacture and ship products. While they expect these to be transitory, they remain a near-term concern. Additionally, the company faces risks related to the dynamic nature of the COVID-19 pandemic and its potential to alter business operations.

Western Digital has reorganized its business into two primary reportable segments: Hard Disk Drives (HDD) and Flash-based products (Flash). They have also refined their end-market reporting to focus on three categories: Cloud, Client, and Consumer, to better align with market dynamics and provide more discrete information for management decision-making.