Western Digital: Fiscal 3Q20 Financial Results

$4,2 billion revenue down 1% Q/Q and up 14% Y/Y, Q/Q sales at -12% for HDDs and +12% for SSDs

Highlights

• 3FQ20 revenue was $4.2 billion, up 14% Y/Y. Data center devices and solutions revenue grew 22%, client devices grew 13%, and client solutions grew 2% Y/Y.
• 3FQ20 GAAP earnings-per-share (EPS) was $0.06 and non-GAAP EPS was $0.85. Both GAAP and non-GAAP EPS include $13 million cost of revenue impact due to Covid-19.
• Generated operating cash flow of $142 million and free cash flow of $176 million. Suspending our dividend to strengthen our reinvestment in growth and innovation and to support our ongoing deleveraging efforts.
• Expecting 4FQ20 revenue to be in the range of $4.25 to $4.45 billion with non-GAAP EPS in the range of $1.00 to $1.40. Non-GAAP EPS outlook anticipates the impacts due to Covid-19.

“I joined Western Digital a little over a month ago because I have strong conviction in the digital transformation that is reshaping every industry, every company and how all of us live our daily lives,” said David Goeckeler, CEO. “While I couldn’t have anticipated the unprecedented series of events that have transpired, I’m very proud of how the company has responded to an extremely dynamic environment with dedicated focus both on our employees’ safety as well as delivering our market leading technology to our customers. As the only company in the world to provide a broad array of NAND flash, SS and HDDs solutions, I’m confident our innovation will drive significant new value for customers around the world.”

The company generated $142 million in cash from operations during 3FQ20 and ended the quarter with $2.9 billion of total cash and cash equivalents. It returned $149 million to shareholders through dividends and used $212 million to reduce debt. On February 13, 2020, it declared a cash dividend of $0.50 per share of common stock, which was paid to shareholders on April 17, 2020.

Going forward, it is suspending its dividend to strengthen its reinvestment in growth and innovation and to support our ongoing deleveraging efforts. It will reevaluate dividend policy as leverage ratios improve.

The firm is bringing next gen energy-assisted drives to market, as it recognized revenue for its 16TB and 18TB drives during the quarter. Customer interest in these products, specifically 18TB drive, is high, and the ramp is on schedule.

Customer acceptance of enterprise SSDs continued to grow. Latest 96-layer NVMe-based SSDs have completed more than 20 qualifications, with well over 100 qualifications in progress at multiple cloud and OEM customers worldwide.

Demand for notebook solutions was greater than expected due to the shift to working from home and e-learning. The firm experienced record client SSD revenue during 3FQ20 and expect continued growth in 4FQ20.

Desktop HDD revenue was down due to normal seasonality and the shift towards notebook solutions. In addition, smart video HDD demand was softer than expected as a result of Covid-19.

Mobile flash bit shipments remained modest in the quarter as the company strategically managed its exposure to this part of the market.

Retail was particularly affected by Covid-19, in a typically seasonally weaker quarter. As the firm approached the end of the quarter, it experienced a decline in demand from traditional brick and mortar retailers as they started to temporarily close their stores. While many retailers shifted to curbside pickup and began pushing sales through their online channels, it is expected that physical store closures will create a headwind in 4FQ20.