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Western Digital falls on soft guidance; Seagate adds to losses

  • Like Seagate (STX -4%), Western Digital (WDC -6.1%) missed FQ3 revenue estimates while beating EPS forecasts. Also like Seagate, it offered light FQ4 guidance on its CC (transcript): Revenue of $3.5B-$3.6B and EPS of $1.65-$1.75 vs. a consensus of $3.72B and $1.89.
  • While Seagate estimates March quarter industry hard drive shipments totaled 138M, Western pegs them at 137M. More importantly, the company expects shipments to fall to 130M in the June quarter.
  • Goldman notes hyperscale data center owners (Google, Facebook, Amazon, etc.) are getting more efficient with their storage usage, and that this is affecting both Western and Seagate. Seagate is also dealing with inventory issues at enterprise storage OEMs; Western isn't reporting anything similar.
  • With SSDs continuing to encroach on hard drives, Western's enterprise SSD sales grew to $134M (+46% Y/Y, still less than 4% of sales) in FQ3, and are expected to outgrow the broader market going forward. Non-PC applications made up 53% of total revenue.
  • Western's ASP fell $2 Q/Q to $58 due to.a mix shift towards console hard drive sales. In spite of the ASP drop, gross margin was 30.1%, flat Q/Q and up 90 bps Y/Y, and above guidance of 29.5%. A 29.5% GM is forecast for FQ4.
  • $244M was spent on buybacks, up from $150M in FQ2. Free cash flow was $536M vs. $539M a year ago.
  • Hard drive controller supplier Marvell (MRVL -1%) is off moderately.
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