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
Feb. 7, 2014, 5:50 AM
- Western Digital Corporation (WDC) declares $0.30/share quarterly dividend, in line with prior.
- Forward yield 1.44%.
- Payable April 15; for shareholders of record March 28; ex-div March 26.
Jan. 27, 2014, 6:07 PM
- In addition to missing FQ2 estimates, Seagate (STX) has guided on its CC for FQ3 revenue of "at least" $3.4B; that compares unfavorably with a consensus of $3.46B.
- Seagate estimates the total addressable market (TAM) for hard drives stood at 142M (same as Western Digital) in the December quarter, up by 2M Q/Q and 6M Y/Y. The company estimates its share was 40%, flat Q/Q but down from 43% a year ago.
- FQ2 gross margin was 28%, flat Q/Q and up 100 bps Y/Y. $1.5B was spent on buybacks, thanks to the Samsung deal.
- Enterprise shipments (higher-margin) +7% to 7.8M, desktops -12% to 19.2M, notebooks -2% to 16.9M, consumer electronics +20% to 6.7M, branded drives (also higher-margin) +3% to 6.2M.
- Western Digital (WDC) is ticking lower in sympathy with Seagate. The shoe was on the other foot last week.
- Seagate's earnings slides
Jan. 22, 2014, 6:33 PM
- SanDisk (SNDK) has guided on its Q4 CC for Q1 revenue of $1.53B-$1.54B, above a $1.52B consensus. However, the midpoint of the company's full-year guidance range ($6.4B-$6.8B) is below a $6.71B consensus.
- Q4 gross margin was 50.9%, +80 bps Q/Q and +1100 bps Y/Y. Recent NAND flash price pressure has slowed down margin expansion. SanDisk expects to have a gross margin of 47%-49% in seasonally weak Q1; that's down Q/Q, but from a Q1 2013 level of 40.5%.
- $150M was spent on buybacks in Q4, down from a whopping $1.07B in Q3 (largely tied to an accelerated repurchase program)
- SNDK +0.5% AH. Q4 results, PR.
Jan. 22, 2014, 6:22 PM
- Though it beat FQ2 (Dec. quarter) estimates, Western Digital (WDC) has guided on its CC for FQ3 revenue of $3.65B-$3.75B and EPS of $1.80-$1.90, mostly below a consensus of $3.73B and $1.95. The company blames a seasonally weaker hard drive market and lower factory utilization.
- Western is down 2% AH. Archrival Seagate (STX), which reports on Monday, is down 2.1%, as is hard drive/SSD controller supplier Marvell (MRVL).
- Western estimates the total addressable market (TAM) for hard drives was 142M in FQ2; that's slightly above guidance for TAM to be roughly flat with an FQ1 level of 139M. Gaming was an area of strength, no doubt thanks to the Xbox One/PS4 launches.
- FQ2 gross margin was 30.1%, +30 bps Q/Q and +140 bps Y/Y, and slightly better than guidance. FQ3 gross margin is expected to be near the midpoint of Western's 27%-32% model range (implies 29.5%).
- $150M was spent on buybacks, and 54% of revenue came from non-PC applications. ASP rose by $2 Q/Q to $60, thanks to a stronger mix of branded drive and distributor sales.
- FQ2 results, PR, prepared remarks, datasheet
Jan. 22, 2014, 4:29 PM
- SanDisk Corporation (SNDK) declares $0.225/share quarterly dividend, in line with prior.
- Forward yield 1.25%.
- Payable Feb. 24; for shareholders of record Feb. 3; ex-div Jan 30.
Jan. 22, 2014, 4:17 PM
- Western Digital Corporation (WDC): Q2 EPS of $2.19 beats by $0.11.
- Revenue of $4B (+4.7% Y/Y) beats by $160M.
Jan. 22, 2014, 4:07 PM
- SanDisk Corporation (SNDK): Q4 EPS of $1.71 beats by $0.13.
- Revenue of $1.73B (+12.3% Y/Y) beats by $30M.
- Shares +2.3%.
Jan. 22, 2014, 12:10 AM
Jan. 21, 2014, 5:35 PM
Jan. 21, 2014, 9:57 AM
- 3D Systems (DDD -3%) has been cut to Neutral by Credit Suisse.
- Seagate (STX +2.1%) has been upgraded to Overweight by Morgan Stanley, and rival Western Digital (WDC +0.5%) has been upgraded to Outperform by BMO. Wesern reports tomorrow, and Seagate on Jan. 27.
- SolarCity (SCTY -3.3%) has been cut to Neutral by JPMorgan. Deutsche started shares at Buy last week.
- SanDisk (SNDK -2.3%) has been cut to Neutral by BofA/Merrill. Q4 results arrive tomorrow.
- NetApp (NTAP +2.2%) has been upgraded to Buy by Lake Street Capital.
- InvenSense (INVN -2.8%) has been cut to Hold by Needham.
- FireEye (FEYE -3.7%) has been cut to Neutral by JPMorgan following a huge run-up in the wake of the Mandiant deal and the company's guidance hike.
- Altera (ALTR +2.8%) has been upgraded to Overweight by JPMorgan ahead of Wednesday's Q4 report.
- Tibco (TIBX -2.4%) has been cut to Neutral by Wedbush. Shares rallied last week on a report suggesting Dan Loeb is set to make an activist push.
- NetSuite (N +1.1%) has been upgraded to Buy by Maxim.
- Violin Memory (VMEM -3.7%) has been cut to Underweight by Barclays.
- Motorola Solutions (MSI +1.8%) has been upgraded to Buy by Citi.
- LG Display (LPL +3.2%) has been upgraded to Buy by BofA/Merrill.
Jan. 14, 2014, 1:54 PM
- Seagate (STX +3.1%) and Western Digital (WDC +3.3%) are both up sharply after leading hard drive suspension assembly supplier Hutchinson (HTCH +13%) reported preliminary Dec. quarter sales that soundly beat consensus estimates, and did so on the back of 13% Q/Q and 12% Y/Y assembly shipment growth.
- Storage hardware vendor Quantum's guidance hike might be helping the hard drive kingpins as well.
- Noble Financial observes Hutchinson's Q/Q shipment growth (attributed to strong demand for 2.5" notebook drives) is "welcome news" given Seagate/Western had guided for roughly flat industry hard drive shipments for the Dec. quarter.
- The firm is reiterating a Buy on Hutchinson, but also thinks the company needs to ship 130M assemblies/quarter (up from a Dec. quarter level of 115.7M) to break even.
- Western reports on Jan. 22, and Seagate on Jan. 27.
Jan. 9, 2014, 5:58 PM
- IDC and Gartner respectively estimate PC shipments fell 5.6% and 6.9% Y/Y in Q4. Those numbers represent improvements from estimated Q3 declines of 7.6% and 8.6%. For the full year, both firms think shipments dropped 10% (to 315M and 316M, respectively).
- Gartner thinks U.S. PC sales (outperformed in Q3) have bottomed, but nonetheless estimates they fell 7.5%, and states "consumer spending during the holidays did not come back to PCs as tablets were one of the hottest holiday items."
- IDC thinks U.S. shipments only fell 1.6%, thanks to healthy enterprise demand. EMEA and much of Asia-Pac remained weak, but Japan delivered positive growth. The U.S. and Japan have higher ASPs and lower piracy rates than many emerging markets.
- Lenovo (LNVGY) added to its market lead in Q4: IDC assigns the company an 18.6% share (+250 bps Y/Y). #2 H-P, which performed well in its October quarter, is given a 16.8% share (-50 bps); both IDC and Gartner think H-P's U.S. sales were weak. #3 Dell, which has been cutting prices to gain share, is given a 12.2% share (+130 bps).
- H-P and Lenovo have each rolled out a slew of new Windows and Android notebooks, tablets, and convertibles at CES. Lenovo's pricing has arguably been more aggressive than H-P's.
- Other PC industry names: MSFT, INTC, AMD, NVDA, MU, STX, WDC.
Jan. 7, 2014, 4:31 PM
- In its first full quarter with Elpida on the books, Micron (MU) had FQ1 free cash flow of $838M, sharply above an FQ4 level of $385M and a big reversal from a year-ago level of -$302M. The increase came even though (thanks in part to Elpida) capex jumped to $669M (16.6% of revenue) from an FQ4 level of $332M.
- Contributing to the cash flow jump: Gross margin rose to 32% from 25% in FQ4 and a mere 12% a year ago. Growing scale, healthy DRAM pricing (aided by the SK Hynix fire), and Elpida's mobile DRAM sales (mobile DRAM generally carries higher margins than PC DRAM) likely helped out..
- The Elpida deal contributed to a 69% Q/Q increase in DRAM sales. NAND flash sales rose 8% Q/Q after growing 5% in FQ4, with an 11% volume increase offsetting a slight ASP decline.
- While revenue rose 120% Y/Y to $4.04B, SG&A spend rose 48% to $176M, and R&D spend 43% to $320M. Micron had $5.8B in debt at the end of FQ1, to go with $4.4B in cash/investments.
- MU +5.8% AH. NAND rival SanDisk (SNDK) +0.7%. CC at 4:30PM ET.
- FQ1 results, PR
Jan. 3, 2014, 12:30 PM
- RBC's Doug Freedman has downgraded Micron (MU -3.5%) to Sector Perform, while arguing the DRAM/NAND flash vendor might fail to achieve the $3+ in annual EPS bulls are hoping it will eventually produce. Micron's FY15 (ends Aug. '15) EPS consensus is currently at $2.28, but some estimates are much higher.
- Freedman, who had been bullish on Micron for a long time, is worried about softening growth in mobile (~25% of Micron's revenue post-Elpida), the gross margin pressure placed by Micron's reliance on JVs (with Intel, Nanya, etc.), pending increases in DRAM and NAND supply, and the fact Micron's fabs (the company has seven of them spread out between five companies) are less concentrated than those of Samsung and SK Hynix.
- Shares rallied earlier this week after Drexel Hamilton provided an upbeat note regarding DRAM and NAND pricing.
- NAND rival SanDisk (SNDK -0.8%) is down slightly, but still close to its 52-week high of $70.93.
Dec. 23, 2013, 6:48 PM
- With Xyratex's storage subsystem business both a supplier and a rival to the storage OEMs who account for a large chunk of Seagate's (STX) enterprise hard drive sales, analysts note Seagate's pending acquisition of Xyratex brings both cross-selling opportunities and channel conflict risks.
- BMO suspects Seagate hopes to use Xyratex (presumably via its ClusterStor line) to directly supply Web/cloud providers, but also notes Seagate "will now compete against a set of customers." The Register's Chris Mellor: "Western Digital (WDC) and Toshiba ... should pick up some extra [hard drive] business from OEMs displeased by Seagate competing with its own channel."
- Piper, however, likes how Xyratex's hard drive equipment unit could lower Seagate's hard drive testing times and capex. It also observes Xyratex claims IBM, H-P, NetApp, and Dell as clients, even if it competes with them to an extent.
- Wells Fargo likes the deal, but also thinks Seagate may still need to make some flash storage acquisitions. Western Digital has been more aggressive here, snapping up server flash module vendor Virident and module/SSD supplier sTec.
- Deutsche, meanwhile, expects Teradyne's (TER) hard drive test equipment sales to get a boost as Western Digital and Toshiba stop buying test equipment from Xyratex.
Dec. 23, 2013, 9:25 AM
- Seagate (STX) is acquiring hard drive equipment/storage subsystem maker Xyratex (XRTX) for $13.25/share, or $294M if excluding $80M in cash on hand. The price represents a 27% premium to Xyratex's Friday close. (PR)
- By acquiring Xyratex, which has counted Seagate, Western Digital (WDC), and Toshiba among its clients (the latter two might now now turn to other suppliers), Seagate is vertically integrating in an effort to gain a manufacturing edge. The purchase comes shortly after Western beat Seagate to the punch in shipping helium drives (they're lighter, denser, and more power-efficient than conventional drives), a technology long promoted by Xyratex.
- The deal also increases Seagate's enterprise storage exposure. As SA Pro contributor Kingsley Park Capital has noted, Xyratex, historically focused on relatively low-end solutions, recently launched ClusterStor, a solution aimed at the growing, higher-margin HPC storage market.
- Seagate expects the purchase to contribute $500M-$600M to FY15 (ends June '15) revenue, and to be neutral to FY15 EPS. The deal is expected to close by mid-2014. Activist investor Baker Street Capital, which has a large stake in Xyratex, backs the deal.
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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