10-QPeriod: Q1 FY2025

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Sep 27, 2024

Filed October 31, 2024For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a significant rebound in revenue and profitability for the quarter ending September 26, 2024, compared to the same period last year. Total revenue surged by 49% to $4.1 billion, driven by strong performance in both the HDD and Flash segments, particularly a 153% increase in Cloud revenue. This top-line growth translated into a substantial improvement in profitability, with net income reaching $493 million, a dramatic turnaround from a net loss of $685 million in the prior year. The company's gross margin also saw a remarkable expansion to 37.9%, up from 3.6%, benefiting from improved pricing and a more favorable product mix. Key strategic initiatives, including the planned separation of the HDD and Flash business units into two independent companies, are progressing, with the "soft-spin" phase initiated. Additionally, the company finalized the sale of an 80% stake in a Flash manufacturing subsidiary, which is expected to slightly reduce annual operating expenses and capital expenditures while increasing the cost of revenue for Flash-based products. While the company faces ongoing risks related to macroeconomic conditions and competition, the current financial performance indicates a strong recovery and improved market conditions for data storage solutions.

Financial Highlights

52 data points
Beta

Revenue

$2.21B

36.4% Gross Margin

Net Income

$493.00M

22.3% Net Margin

EPS (Diluted)

$1.35

Total Assets

$24.77B

Cash & Equivalents

$1.71B

Free Cash Flow

-$62.00M

Financial Statements
Beta
Revenue$2.21B
Cost of Revenue$1.41B
Gross Profit$806.00M
SG&A Expenses$204.00M
Operating Expenses$472.00M
Operating Income$334.00M
Net Income$493.00M
EPS (Basic)$1.40
EPS (Diluted)$1.35
Shares Outstanding (Basic)344.00M
Shares Outstanding (Diluted)357.00M

Key Highlights

  • 1Revenue increased significantly by 49% year-over-year to $4.1 billion, driven by strong performance in both HDD and Flash segments.
  • 2Net income turned positive at $493 million, a substantial improvement from a net loss of $685 million in the prior year.
  • 3Gross margin expanded dramatically to 37.9% from 3.6% year-over-year, reflecting improved pricing and product mix.
  • 4Cloud revenue experienced a substantial increase of 153%, driven by higher shipments of high-capacity enterprise HDD products.
  • 5The company has initiated the 'soft-spin' phase for the separation of its HDD and Flash business units into two independent companies.
  • 6A majority interest in a Flash manufacturing subsidiary was sold, with the transaction closing post-quarter.
  • 7Total assets increased to $24.77 billion, while total liabilities decreased slightly to $12.90 billion.

Frequently Asked Questions

The significant revenue increase of 49% to $4.1 billion was primarily driven by strong performance across both the Hard Disk Drive (HDD) and Flash-based product segments. Specifically, Cloud revenue saw a substantial surge of 153%, largely due to increased shipments of high-capacity enterprise HDD products for new data center builds. Improved pricing in Flash products also contributed significantly as the supply-demand balance improved.

The company is making progress on its plan to separate its HDD and Flash business units into two independent public companies. At the beginning of the second quarter of fiscal 2025, the 'soft-spin' phase was initiated, which involves testing critical processes and systems for each future company to ensure they can operate independently at the time of legal separation. The company expects the separation to occur after closing the second quarter of fiscal 2025.

Western Digital is observing an improvement in the supply and demand dynamics within the data storage market, leading to increased revenues. The company anticipates that digital transformation, including the AI data-cycle, will continue to drive improved market conditions for both HDD and Flash technologies. They believe their expertise in both areas positions them well to capitalize on these improving trends.

The sale of an 80% equity interest in a Flash manufacturing subsidiary, which closed post-quarter, is expected to result in a modest reduction in annual operating expenses and a reduction in annual capital expenditures related to assembly and testing of Flash-based products. However, the transition to a contract manufacturing model is anticipated to lead to a small increase in the annual cost of revenue for Flash-based products.