10-QPeriod: Q3 FY2023

WESTERN DIGITAL CORP Quarterly Report for Q3 Ended Mar 31, 2023

Filed May 10, 2023For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a significant revenue decline in the third quarter of fiscal year 2023, with net revenue falling 36% year-over-year to $2.8 billion, reflecting a challenging macroeconomic environment impacting demand for both its Flash and HDD products. The company incurred a net loss of $572 million, a stark contrast to the $25 million net income in the prior year's quarter, largely due to lower revenues and increased charges for manufacturing underutilization and inventory write-downs. Despite the challenging quarter, the company is actively managing its financial position. This includes efforts to reduce operating expenses, scale back capital expenditures, and a recent issuance of $900 million in Series A Preferred Stock to enhance financial flexibility. The company also provided an update on a network security incident discovered in late March 2023, which caused some operational disruptions but is not expected to have a material impact on financial results. WDC continues its strategic review process, evaluating options for separating its Flash and HDD business units.

Financial Highlights

51 data points
Beta

Revenue

$2.80B

10.2% Gross Margin

Net Income

-$571.00M

-20.4% Net Margin

EPS (Diluted)

$-1.82

Total Assets

$25.15B

Cash & Equivalents

$2.22B

Free Cash Flow

-$505.00M

Financial Statements
Beta
Revenue$2.80B
Cost of Revenue$2.52B
Gross Profit$286.00M
SG&A Expenses$242.00M
Operating Expenses$758.00M
Operating Income-$472.00M
Interest Expense$80.00M
Net Income-$571.00M
EPS (Basic)$-1.82
EPS (Diluted)$-1.82
Shares Outstanding (Basic)319.00M
Shares Outstanding (Diluted)319.00M

Key Highlights

  • 1Revenue declined significantly by 36% year-over-year to $2.8 billion, driven by weaker demand and pricing pressures in both Flash and HDD segments.
  • 2Net loss for the quarter was $572 million, a sharp deterioration from a $25 million net income in the prior year's quarter.
  • 3Flash revenue decreased by 42%, primarily due to a decline in average selling prices per gigabyte.
  • 4HDD revenue decreased by 30%, mainly due to lower exabyte shipments, particularly to the Cloud end market.
  • 5The company incurred $275 million in manufacturing underutilization and inventory write-down charges, impacting gross profit.
  • 6Western Digital recently issued $900 million in Series A Preferred Stock to bolster financial flexibility.
  • 7A network security incident in late March 2023 caused operational disruptions but is not expected to be material to financial results.

Frequently Asked Questions

The primary reason for the significant revenue decline is a combination of macroeconomic pressures, including inflation and recession concerns, which have softened demand for WDC's products. This has led to a supply-demand imbalance, reduced shipments, and particularly impacted pricing in the Flash segment.

A network security incident discovered in late March 2023 caused some disruptions to business operations, including manufacturing, sales, and fulfillment. While the company has implemented incident response and recovery efforts and most systems are now operational, the full impact on revenues could not be quantified at the time of filing but was not expected to be material. The company incurred investigation, recovery, and remediation expenses.

WDC is actively managing its financial position by scaling back capital expenditures, consolidating production lines, reducing operating expenses, and implementing employee termination and other charges. Additionally, the company recently issued $900 million in Series A Preferred Stock to enhance financial flexibility and is continuing its strategic review process, which includes evaluating options for separating its Flash and HDD business units.

Both segments are currently facing challenges. Flash revenue decreased significantly due to falling average selling prices per gigabyte. HDD revenue declined due to lower exabyte shipments, especially to the Cloud market. While the company believes digital transformation will drive long-term storage growth, near-term results are expected to be impacted by the current market conditions.