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Western Digital's Earnings Soar As The Toshiba Saga Continues

Michael Fitzsimmons profile picture
Michael Fitzsimmons


  • Excluding charges, non-GAAP Q1 net income was $1.1 billion or $3.56/share.
  • Q1 was strong - driven by excellent NAND results.
  • Toshiba's intent to move forward with the Bain/SK Hynix consortium means that issue will likely be settled in the courts, not in the press.
  • A 9x valuation on expected EPS of $13/share values WDC at $117.

Last week Western Digital (NASDAQ:WDC) delivered powerful Q1 2018 results that beat on both the top (+$40 million) and bottom lines ($0.26/share):

Source: Q1 Supplemental Data

As shown above, gross profit increased by a whopping 43% as compared to the year-ago quarter as revenue increased by $467 million and the cost of revenue decreased by $111 million. Total operating expenses declined by 8.6% as cost-cutting and ongoing integration efforts of previous acquisitions are obviously bearing fruit. The total outstanding diluted share count increased 7.4%. As a result, Q1 per-share gross profit increased to $6.52/share as compared to $4.68/share in the year earlier period.

The Q1 $0.50/share quarterly dividend compares favorably to the net income of $2.23/share (GAAP) and even better to $3.56/share (non-GAAP). The company ended the quarter with $6.9 billion in cash - up from $4.1 billion in the year ago quarter.

Interest expense declined by $308 million. The debt and maturity schedules are shown below. The $3.35 billion of 10.5% notes stick out like a sore thumb, but note they are not callable until April of 2019.

Source: Q1 Quarterly Fact Sheet

The Client Devices and Client Solutions segments continued to deliver solid sequential growth, while results from the Data Center Devices & Solutions segment were somewhat of a disappointment. That said, total exabytes shipped were up 7.6% from Q4FY17, and free cash flow was $847 million - up 11.3% sequentially from the prior quarter:

Source: Q1 Quarterly Fact Sheet


WDC will continue to benefit from favorable demand and NAND pricing for the coming year. Strong demand will be driven by new generation cell phone devices with higher NAND capacity. Meantime, the HDD demand curve is starting to smooth out as data centers take over from the historical PC demand-driven roller-coaster. Gross margins should be north of 40% for FY2018 as the

This article was written by

Michael Fitzsimmons profile picture
Technology stocks, ETFs, portfolio strategy, renewable energy, and O&G companies. Primary goal is growing net-worth. I typically allocate a portion of my own portfolio and devote some of my SA articles to small and medium sized companies offering compelling risk/reward propositions. I am an Electronics Engineer, not a qualified investment advisor. While the information and data presented in my articles are obtained from company documents and/or sources believed to be reliable, they have not been independently verified. Therefore, I cannot guarantee its accuracy. I advise investors conduct their own research and due-diligence and to consult a qualified investment advisor. I explicitly disclaim any liability that may arise from investment decisions you make based on my articles. Thanks for reading and I wish you much investment success!

Analyst’s Disclosure: I am/we are long WDC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I am an engineer, not a CFA. The information and data presented in this article were obtained from company documents and/or sources believed to be reliable, but have not been independently verified. Therefore, the author cannot guarantee their accuracy. Please do your own research and contact a qualified investment advisor. I am not responsible for investment decisions you make. Thanks for reading and good luck!

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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