Sunil Shah's  Instablog

First off, this qtr release was a huge disappointment.

However, consider this:
-the leads/lags inventory in pipeline is incredibly complex and elusive. For the March qtr, they blew expectations off the charts, AND IN HINDSIGHT IT WAS AIDED BY INVENTORY REPLENISHMENT (INTEL CHIPS FOR QTR DOWN 7%, WHILST HDD S DOWN 2%; OEMS GOING FROM AIR BACK TO SEA AND HENCE ORDERS PULLED FWD INTO MARCH QTR. SEE EXCERPT BELOW (WDC EPS MAR QTR 1.71, CONSENSUS 1.55)

-Mgmt (ERRONEOUSLY!) interpreted the strength to continue and then we had Europe. So this qtr is a disaster. BUT IT IS ONLY SO VERSUS EXPECTATIONS. And it has clearly dented Mgmt's confidence as per the CC.

-FOR 1H 2010, This company had earnings power of 1.71+1.23= 2.94$ for six months. Higher than their read of the incredibly complex pipeline in one qtr and lower the next. But in sum about $3 earnings power for six months. That is incredible!! Check the valuation. Again! NOW!

-the only thing in question is their ability to read the ebb/flow of the inventory cycle and end demand. But you know what? Expecting a TAM of 160 versus actual 155m for the qtr, is objectively pretty prescient. And penalising them this severely for not reading that is actually ridiculous. This is one of the best mgmt teams on the market.

-Long and Confident WDC!

PS -And Maybe there is a plan- why not activate that buyback now?

March results excerpt below:

LAKE FOREST, Calif. (AP) -- Hard disk drive maker Western Digital Corp. said its third-quarter net profit grew eight-fold as its revenue increased by 66 percent amid strong demand.

CEO John Coyne said in a statement that demand was stronger than expected in the third quarter, adding "2010 will continue to be a strong year for digital storage."