Western Digital, Misunderstood Merger With Significant Upside And Limited Downside
Alex Zhao, CFA • 40 Comments
Alex Zhao, CFA • 40 Comments
The Street's Upcoming Affair With SanDisk
Apr. 28, 2015, 6:33 PM
- In addition to missing FQ3 estimates, Western Digital (NASDAQ:WDC) has guided on its CC for FQ4 revenue of $3.3B-$3.4B and EPS of $1.50-$1.60, below a consensus of $3.64B and $1.92. Not surprisingly, much of the blame is placed on weak PC sales.
- FQ3 gross margin (non-GAAP) was 30.1%, down 40 bps Q/Q and flat Y/Y. Western has set a broad FQ4 GM guidance range of 27%-32%. Operating expenses fell 2% Y/Y to $591M, and $240M was spent on buybacks.
- Desktop hard drive shipments fell by 3.1M Y/Y to 13.5M, and notebook drives by 3M to 18.8M. Enterprise drives (high-margin, lifted by Web/cloud demand) rose by 400K to 7.5M; branded drives (also high-margin) fell by 100K to 6.1M; consumer electronics drives rose fractionally to 8.6M.
- Western estimates the total addressable market (TAM) for hard drives fell to 125M from FQ2's 140.8M and the year-ago period's 138.1M. 60% of revenue came from non-PC products, up from 53% a year ago. Enterprise SSD revenue rose to $224M from FQ2's $187M and the year-ago period's $134M.
- Shares have fallen to $94.50 AH. Seagate provided light guidance 11 days ago.
- FQ3 results, PR, datasheet (.pdf)
Apr. 28, 2015, 4:17 PM
- Western Digital (NASDAQ:WDC): FQ3 EPS of $1.87 misses by $0.02.
- Revenue of $3.55B (-4.1% Y/Y) misses by $50M.
- Shares -0.05%.
Apr. 17, 2015, 11:00 AM
- In addition to missing FQ3 revenue estimates (while beating on EPS), Seagate (NASDAQ:STX) has guided on its CC (webcast) for FQ4 revenue of $3.2B-$3.3B, below a $3.42B consensus. However, a light outlook was expected given the PC industry's recent woes. Demand is expected to pick up in 2H15 thanks to higher PC/console sales and continued enterprise/cloud strength.
- $706M was spent on buybacks in FQ3, helping EPS beat estimates in spite of a revenue miss. Also: Gross margin was 28.9%, +70 bps Q/Q and +40 bps Y/Y, and above guidance of 28.5%. While revenue fell 2% Y/Y, operating expenses rose 18% to $555M, thanks to both higher R&D and marketing/admin spend.
- Boosting margins: Shipments of enterprise drives (higher-margin) rose 18% to 9.1M thanks to a server upgrade cycle and Web/cloud demand. PC drive shipments fell 14% to 31.1M, with plunging desktop volumes offsetting slight notebook growth. Consumer drives -11% to 4.8M; branded drives -14% to 5.1M. Hard drive ASP rose $1 Q/Q and Y/Y to $62.
- Western Digital (NASDAQ:WDC) is following Seagate higher ahead of its April 28 FQ3 report. The gains come in in spite of a 1.5% drop for the Nasdaq. BofA's upgrades are looking good for now.
- Seagate's FQ3 results, PR, earnings slides (.pdf)
Apr. 15, 2015, 5:47 PM
- SanDisk (NASDAQ:SNDK) has guided on its Q1 CC (webcast) for Q2 revenue of $1.15B-$1.225B and 2015 revenue of $5.4B-$5.7B, below consensus estimates of $1.45B and $6.15B and year-ago levels of $1.63B and $6.63B. Some of the weakness was priced in following SanDisk's March 26 Q1 warning.
- The NAND flash giant also forecasts gross margin (non-GAAP) will drop to 37%-40% in Q2 from Q1's 43%, which itself is down from Q4's 45% and Q1 2014's 51%. Soft prices and a mix shift away from enterprise sales are taking a toll. GM is expected to rise to 40%-43% in 2H15.
- SanDisk plans to cut 5% of its non-factory headcount. Its enterprise product teams are being merged, as are its mobile and client SSD teams. In addition, client SSD product chief Kevin Conley has been promoted to CTO.
- Issues contributing to the Q1/Q2 weakness: 1) Qualification delays for an embedded/client SSD design. 2) The phasing out of a client SSD program for a major client (Apple?). 3) Weak PCIe flash (read: Fusion-io) demand thanks to a demand shift towards enterprise SATA SSDs, where SanDisk's share is lower. 4) A shift within enterprise SATA towards 2TB drives; SanDisk will have one out later this year.
- Shares have dropped to $66.89 AH. The 52-week low is $63.00
- Q1 results, PR
Apr. 15, 2015, 4:08 PM
- SanDisk (NASDAQ:SNDK): FQ1 EPS of $0.62 misses by $0.04.
- Revenue of $1.33B (-11.9% Y/Y) beats by $20M.
- Shares -0.45%.
Apr. 14, 2015, 5:35 PM
Mar. 12, 2015, 9:17 AM
- Intel (NASDAQ:INTC) now expects Q1 revenue of $12.5B-$13.1B, below prior guidance of $13.2B-$14.2B and a $13.7B consensus. Gross margin guidance remains at 60% (+/- 2%), with lower volumes offset by higher ASPs.
- "All other expectations" have been withdrawn - that presumably includes full-year guidance for mid-single digit revenue growth. Guidance will be updated during Intel's April 14 Q1 report.
- The chip giant blames the warning on "weaker than expected demand for business desktop PCs and lower than expected inventory levels across the PC supply chain." In particular, it thinks "lower than expected Windows XP* refresh in small and medium business and increasingly challenging macroeconomic and currency conditions, particularly in Europe," are taking a toll on sales. Server CPU division sales are "meeting expectations."
- Other PC-exposed names are following Intel lower: Microsoft (NASDAQ:MSFT) -2.4% premarket, AMD -2.8%, Nvidia (NASDAQ:NVDA) -2.5%, HP (NYSE:HPQ) -2.3%, Seagate (NASDAQ:STX) -2.5%, Western Digital (NASDAQ:WDC) -2.7%, Micron (NASDAQ:MU) -3.6%.
- Update (11:35AM ET): While Intel is still down over 4%, Micron and Seagate have turned positive, and HP is close to breakeven. Microsoft, Nvidia, and Western Digital have pared their losses, but remain lower.
Jan. 27, 2015, 8:14 PM
- Western Digital (NASDAQ:WDC) guided on its FQ2 CC for FQ3 revenue of $3.6B-$3.7B and EPS of $1.90-$2.00, mostly below a consensus of $3.73 and $1.99. With shares having already plunged over the last two days due to Seagate's outlook and Microsoft's numbers, investors are giving the hard drive giant a pass.
- FQ2 gross margin was 30.5%, up from 30.1% in FQ1 and the year-ago period, and above guidance for GM to be flat Q/Q. Western is also guiding for GM to be roughly flat Q/Q in FQ3.
- Notably, Western puts the total addressable market for hard drives in calendar Q4 at 140.8M units, less than the 144M-145M estimated by Seagate. That implies an FQ2 share of 43.4%, down from 44% in FQ1 and 44.4% a year ago. Average shipped drive capacity rose to 1.09TB from 1.00TB in FQ1 and 874GB a year ago. ASP was at $60.
- $309M was spent on buybacks, boosting EPS. R&D spend rose 2% to $426M, and SG&A spend 27% to $164M.
- FQ2 results, PR, prepared remarks, factsheet (.pdf)
Jan. 27, 2015, 4:17 PM
- Western Digital (NASDAQ:WDC): FQ2 EPS of $2.26 beats by $0.16.
- Revenue of $3.9B (-1.8% Y/Y) beats by $60M.
- Shares +0.53%.
Jan. 26, 2015, 5:35 PM
Jan. 26, 2015, 10:00 AM
- In addition to slightly missing FQ2 revenue estimates (while posting in-line EPS), Seagate (NASDAQ:STX) has guided on its CC for FQ3 revenue of "at least $3.45 billion," unfavorable to a $3.59B consensus.
- FQ2 gross margin was 28.2%, +10 bps Q/Q but -40 bps Y/Y, and below (per Needham) a consensus of 28.6%. Seagate forecasts an FQ3 GM of 28.5%.
- Seagate estimates the addressable market (TAM) for hard drives was 144M-145M in FQ2, down from 147M in FQ1 and up from 142M a year earlier. The company pegs its share at 40%. Hard drive ASP fell by $1 Y/Y to $61.
- Two weak spots in FQ2: Consumer electronics hard drive shipments fell 9% to 6.1M, and branded drive shipments (high-margin) fell 3% to 6M. PC drive shipments rose 4% Y/Y to 36.6M, with notebook growth offsetting a desktop decline, and enterprise shipments (high-margin) rose 17% to 9.1M.
- $18M was spent on buybacks. Not counting a $620M gain recorded for an arbitration award, opex rose 6% Y/Y.
- Archrival Western Digital (WDC -7.2%) and hard drive assembly supplier Hutchison (HTCH -4.5%) are following Seagate lower. Western reports tomorrow afternoon, and Hutchison on Wednesday morning.
- Seagate's FQ2 results, PR, earnings slides (.pdf)
Jan. 21, 2015, 6:00 PM
- SanDisk (NASDAQ:SNDK) guides on its Q4 CC (webcast) for Q1 revenue of $1.4B-$1.45B, below a $1.6B consensus. Likewise, 2015 guidance is for revenue of $6.5B-$6.8B, below a $7.23B consensus.
- Revenue is expected to be down Y/Y in 1H15 before rebounding in 2H15. Q1 gross margin is expected to be roughly even with Q4's depressed 45%.
- Micron (NASDAQ:MU) is following SanDisk lower, as it did following the NAND rival's Jan. 12 warning.
- SanDisk's Q4 results, details
Jan. 21, 2015, 5:02 PM
- Along with its Q4 results, SanDisk (NASDAQ:SNDK) has announced its buyback authorization has been hiked by $2.5B, bringing its available funds to $3B. At current levels, that's good for repurchasing ~1/6 of outstanding shares. $503.4M was spent on buybacks in Q4.
- As stated in the company's Jan. 12 warning, Q4 gross margin was 45% - down 400 bps Q/Q and 600 bps Y/Y, and below initial guidance of 47%-49%. GAAP R&D spend rose 5% Y/Y to $226.1M, sales/marketing spend 37% to $111.5M (boosted by the Fusion-io deal), and G&A spend 2% to $52.1M.
- SanDisk declares its Q4 issues were "primarily" the result of supply constraints. "We believe that NAND flash industry fundamentals are healthy, and we expect our financial results to improve as we move through 2015."
- SNDK +0.7% AH. Guidance should be provided on the CC, which is getting underway.
- Q4 results, PR
Jan. 21, 2015, 4:07 PM
- SanDisk (NASDAQ:SNDK): Q4 EPS of $1.30 beats by $0.03.
- Revenue of $1.74B (+0.6% Y/Y) beats by $10M.
Jan. 20, 2015, 5:35 PM
Western Digital Corp. engages in the development, manufacture, and provision of data storage solutions. Its product portfolio includes hard disk drives and solid-state drives (SSD) marketed under the HGST, WD, and G-Technology brands. It also offers mobile drives for the notebook, PC, and gaming... More
Industry: Data Storage Devices
Country: United States
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