01—Abstract
Summary
Summary of the 8-K filed October 24, 2024. Cited figures are marked; the original filing is the authoritative source.
Western Digital reported fiscal first quarter 2025 results (quarter ended September 27, 2024) that showed sharp year-over-year recovery.
Revenue was $4.10 billiona, up 9% sequentially and 49% year-over-year, led by Cloud revenue of $2.21 billion (up 17% QoQ and 153% YoY, now 54% of total revenue). GAAP operating income was $742 million versus a loss of $596 million a year earlier, and GAAP EPS was $1.35 versus non-GAAP EPS of $1.78. Gross margin expanded to 37.9% GAAP (38.5% non-GAAP), reflecting strength in enterprise SSD and nearline HDD shipments.
The quarter carries important caveats. Operating cash flow was only $34 millionb and free cash flow was negative $14 million, with cash falling to $1.71 billion. Management also disclosed an October 18, 2024 jury verdict of $316 million in a patent infringement case.
The company has not yet recorded this in the reported results, pending an accounting assessment to be completed with the Form 10-Q, expected by November 6, 2024. The 10-Q figures may therefore differ from these preliminary numbers, although non-GAAP results are not expected to change. Looking ahead, guidance for fiscal Q2 2025 calls for revenue of $4.20 to $4.40 billionc and non-GAAP EPS of $1.75 to $2.05.
The company is also separating its HDD and Flash businesses into two independent public companies, with separation costs of $43 milliond in the quarter. Investors should weigh the strong earnings momentum against the thin cash generation, the pending litigation charge, and the execution risk of the planned separation.
02—Key points
Key Highlights
- Revenue of $4.10B, up 9% QoQ and 49% YoY, with Cloud revenue up 153% YoY to $2.21B (54% of total)
- GAAP operating income of $742M versus a $596M loss a year ago; GAAP gross margin improved to 37.9% from 3.6%
- GAAP diluted EPS of $1.35 and non-GAAP diluted EPS of $1.78, versus a $(2.17) GAAP loss a year earlier
- Operating cash flow of only $34M and free cash flow of $(14)M; cash and equivalents declined to $1.71B
- $316M patent infringement jury verdict (October 18, 2024) not yet reflected in results; 10-Q with accounting assessment due by November 6, 2024
- Fiscal Q2 2025 guidance: revenue of $4.20-$4.40B, GAAP gross margin of 36.5-38.5%, and non-GAAP EPS of $1.75-$2.05
- Planned separation of HDD and Flash businesses into two independent public companies, with $43M of separation costs in the quarter
03—Questions
Frequently Asked Questions
Why did Western Digital's earnings improve so dramatically year over year?
Revenue rose 49% to $4.10B, driven mainly by Cloud, where nearline HDD shipments and enterprise SSD bit shipments to data center customers grew strongly. Higher Flash ASPs and improved HDD and Flash pricing also lifted gross margin from 3.6% to 37.9% on a GAAP basis. Prior-year results were depressed by a weak Flash environment and lower HDD volumes.
Does the $316 million patent verdict affect the reported results?
Not as reported in this press release. The company is still assessing the accounting treatment, and the figures exclude any impact. The final impact will appear in the Form 10-Q, expected by November 6, 2024, and GAAP net income could be materially lower than the preliminary $481M attributable to common shareholders. The company does not expect a change to its non-GAAP results.
Is Western Digital generating enough cash to support its business?
Cash generation was weak this quarter. Operating cash flow was $34M, and after $95M of capital expenditures and a $47M Flash Ventures inflow, free cash flow was $(14)M. Cash and equivalents fell to $1.71B from $1.88B, and total debt is about $7.4B including the current portion. Investors will watch whether working capital, which absorbed significant cash this quarter, normalizes.
What is the outlook for the fiscal second quarter of 2025?
Management guided to revenue of $4.20-$4.40B and non-GAAP EPS of $1.75-$2.05. Non-GAAP gross margin is expected at 37.0-39.0%, and non-GAAP operating expenses at $695-$715M. Diluted shares are expected to be about 357 million, and interest expense about $115M on a GAAP basis.
What is the status of the planned HDD and Flash separation?
The company is separating its HDD and Flash businesses to create two independent public companies. This quarter it incurred $43M in business separation costs, which are excluded from non-GAAP results. The filing notes risks around execution, customer and supplier relationships, regulatory and contractual restrictions, and management distraction. The final board approval of the separation is also still pending.
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