News Summary
- Second quarter revenue was $3.9 billion, down 7% year-over-year
(YoY). Client Devices revenue increased 19%, Data Center Devices
and Solutions revenue declined 46%, and Client Solutions revenue
increased 6% YoY.
- Second quarter GAAP earnings per share (EPS) was $0.20 and
non-GAAP EPS was $0.69.
- Generated operating cash flow of $425 million and free cash
flow of $149 million in the second quarter.
- Expecting fiscal third quarter 2021 revenue to be in the range
of $3.85 billion to $4.05 billion with non-GAAP EPS in the range of
$0.55 to $0.75.
Western Digital Corp. (Nasdaq: WDC) today reported fiscal second
quarter 2021 financial results.
“The team delivered solid results this quarter, especially as we
continue adapting our business and technology portfolio to take
advantage of the immense opportunities in the storage industry,”
said, David Goeckeler, Western Digital CEO. “During the quarter, we
captured strength in the retail business and also delivered on our
target outcome to complete qualification of our energy-assisted
hard drives and second-generation enterprise SSD products with some
of the world’s largest data center operators. While there is still
more work to be done, we remain extremely focused on meeting the
needs of our customers and ramping our next-generation products
throughout calendar 2021.”
Q2 2021 Financial Highlights
GAAP
Non-GAAP
Q2 2021
Q2 2020
vs. Q2 2020
Q2 2021
Q2 2020
vs. Q2 2020
Revenue ($M)
$3,943
$4,234
down 7%
$3,943
$4,234
down 7%
Gross Margin
24.3%
22.1%
up 2.2 ppt
26.4%
25.9%
up 0.5 ppt
Operating Expenses ($M)
$802
$885
down 9%
$696
$765
down 9%
Operating Income ($M)
$158
$50
up 216%
$343
$333
up 3%
Net Income (Loss) ($M)
$62
($139)
*
$212
$187
up 13%
Earnings Per Share
$0.20
($0.47)
*
$0.69
$0.62
up 11%
*not a meaningful figure
Key End Market Summary
Revenue ($M)
Q2 2021
Q2 2020
vs. Q2 2020
Client Devices
$2,131
$1,797
up 19%
Data Center Devices & Solutions
$807
$1,489
down 46%
Client Solutions
$1,005
$948
up 6%
Total Revenue
$3,943
$4,234
down 7%
In the fiscal second quarter of 2021, Western Digital’s revenue
decreased 7% year-over-year to $3.9 billion. The decrease is
largely attributable to a decline in our Data Center Devices &
Solutions end market, more than offsetting growth in Client Devices
and Client Solutions.
In Client Devices, Western Digital’s industry leading NVMe-based
client SSDs and strong relationships with major PC OEMs drove a
record level of exabyte shipments. The pandemic has not only
accelerated the digital transformation, but it has also spurred
technological innovation, driving the ability to access the cloud
using very powerful and advanced end-devices. The ability to
access, store, and share data from anywhere, on any device, has
resulted in robust storage demand for notebook, tablet, and
Chromebook devices.
In Data Center Devices & Solutions, qualifications of the
second-generation eSSD products have progressed well, with nearly
150 qualifications completed, including at one cloud titan. There
has been solid progress made completing the qualifications of our
energy-assisted hard drives, including at three of the four US
cloud titans. While one now-completed cloud titan qualification
slipped beyond our anticipated timeline in the fiscal second
quarter, another cloud titan qualification was completed, ahead of
schedule. With cloud digestion abating and the stabilization of OEM
demand, we believe the demand in capacity enterprise bottomed in
the fiscal second quarter and are anticipating a rebound in the
fiscal third quarter.
In Client Solutions, revenue increased during the seasonally
strong quarter, to a two-year high. This solid performance was
driven by continued growth in retail, supported by the strength of
our brand and the breadth of our portfolio.
Business Outlook for Fiscal Third Quarter of 2021
Three Months Ending
April 2, 2021
GAAP(1)
Non-GAAP(1)
Revenue ($B)
$3.85 - $4.05
$3.85 - $4.05
Gross margin
24.5% - 26.5%
25.5% - 27.5%
Operating expenses ($M)
$770 - $790
$705 - $725
Interest and other expense, net ($M)
~ $80
~ $70
Tax rate
N/A
~ 23% (2)
Diluted earnings per share
N/A
$0.55 - $0.75
Diluted shares outstanding (in
millions)
~ 310
~ 310
______________ (1) Non-GAAP gross margin guidance excludes
amortization of acquired intangible assets and stock-based
compensation expense, totaling approximately $40 million to $60
million. The company’s non-GAAP operating expenses guidance
excludes amortization of acquired intangible assets; stock-based
compensation expense; and employee termination, asset impairment
and other charges, totaling approximately $50 million to $70
million. The company's non-GAAP interest and other expense guidance
excludes approximately $10 million of convertible debt activity. In
the aggregate, non-GAAP diluted earnings per share guidance
excludes these items totaling $100 million to $140 million. The
timing and amount of these charges excluded from non-GAAP gross
margin, non-GAAP operating expenses, non-GAAP interest and other
expense, net and non-GAAP diluted earnings per share cannot be
further allocated or quantified with certainty. Additionally, the
timing and amount of additional charges the company excludes from
its non-GAAP tax rate and non-GAAP diluted earnings per share are
dependent on the timing and determination of certain actions and
cannot be reasonably predicted. Accordingly, full reconciliations
of non-GAAP gross margin, non-GAAP operating expenses, non-GAAP
interest and other expense, non-GAAP tax rate and non-GAAP diluted
earnings per share to the most directly comparable GAAP financial
measures (gross margin, operating expenses, interest and other
expense, tax rate and diluted earnings per share, respectively) are
not available without unreasonable effort.
(2) The non-GAAP tax rate provided is based on a percentage of
non-GAAP pre-tax income.
Investor Communications
The investment community conference call to discuss these
results and the company’s business outlook for the fiscal third
quarter of 2021 will be broadcast live online today at 1:30 p.m.
Pacific/4:30 p.m. Eastern. The live and archived conference
call/webcast and the earnings presentation can be accessed online
at investor.wdc.com.
About Western Digital
Western Digital, a leader in data infrastructure, creates
environments for data to thrive. The company is driving the
innovation needed to help customers capture, preserve, access,
analyze, and transform an ever-increasing diversity of data.
Everywhere data lives, from advanced data centers to mobile sensors
to personal devices, the company's industry-leading solutions
deliver the possibilities of data. Western Digital data-centric
solutions are comprised of the Western Digital®, G-Technology™,
SanDisk® and WD® brands. Financial and investor information is
available on the company's Investor Relations website at
investor.wdc.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995, including statements concerning the company’s preliminary
financial results for its fiscal second quarter ended January 1,
2021; the company’s business outlook for the fiscal third quarter
of 2021; demand trends and market conditions; expectations
regarding our next-generation products and product qualifications;
expectations regarding technological innovation and product and end
market growth; and expected future financial performance. These
forward-looking statements are based on management’s current
expectations and are subject to risks and uncertainties that could
cause actual results to differ materially from those expressed or
implied in the forward-looking statements. The preliminary
financial results for the company’s fiscal second quarter ended
January 1, 2021 included in this press release represent the most
current information available to management. The company’s actual
results when disclosed in its Form 10-Q may differ from these
preliminary results as a result of the completion of the company’s
financial closing procedures; final adjustments; completion of the
review by the company’s independent registered accounting firm; and
other developments that may arise between now and the disclosure of
the final results. Other risks and uncertainties that could cause
actual results to differ materially from those expressed or implied
in the forward-looking statements include: future responses to and
effects of the COVID-19 pandemic; volatility in global economic
conditions; impact of business and market conditions; impact of
competitive products and pricing; our development and introduction
of products based on new technologies and expansion into new data
storage markets; risks associated with cost saving initiatives,
restructurings, acquisitions, divestitures, mergers, joint ventures
and our strategic relationships; difficulties or delays in
manufacturing or other supply chain disruptions; hiring and
retention of key employees; our high level of debt and other
financial obligations; changes to our relationships with key
customers; disruptions in operations from cyberattacks or other
system security risks; actions by competitors; risks associated
with compliance with changing legal and regulatory requirements and
the outcome of legal proceedings; and other risks and uncertainties
listed in the company’s filings with the Securities and Exchange
Commission (the “SEC”), including the company’s Form 10-K filed
with the SEC on August 28, 2020, to which your attention is
directed. You should not place undue reliance on these
forward-looking statements, which speak only as of the date hereof,
and the company undertakes no obligation to update these
forward-looking statements to reflect new information or
events.
Western Digital, the Western Digital logo, G-Technology, SanDisk
and WD are registered trademarks or trademarks of Western Digital
Corporation or its affiliates in the US and/or other countries.
WESTERN DIGITAL
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS
(in millions; unaudited; on a
US GAAP basis)
January 1, 2021
July 3, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
2,956
$
3,048
Accounts receivable, net
1,833
2,379
Inventories
3,576
3,070
Other current assets
744
551
Total current assets
9,109
9,048
Property, plant and equipment, net
2,918
2,854
Notes receivable and investments in Flash
Ventures
1,858
1,875
Goodwill
10,071
10,067
Other intangible assets, net
596
941
Other non-current assets
1,000
877
Total assets
$
25,552
$
25,662
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
1,939
$
1,945
Accounts payable to related parties
393
407
Accrued expenses
1,420
1,296
Accrued compensation
523
472
Current portion of long-term debt
251
286
Total current liabilities
4,526
4,406
Long-term debt
8,882
9,289
Other liabilities
2,315
2,416
Total liabilities
15,723
16,111
Total shareholders’ equity
9,829
9,551
Total liabilities and shareholders’
equity
$
25,552
$
25,662
WESTERN DIGITAL
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share
amounts; unaudited; on a US GAAP basis)
Three Months Ended
Six Months Ended
January 1, 2021
January 3, 2020
January 1, 2021
January 3, 2020
Revenue, net
$
3,943
$
4,234
$
7,865
$
8,274
Cost of revenue
2,983
3,299
6,001
6,581
Gross profit
960
935
1,864
1,693
Operating expenses:
Research and development
535
578
1,090
1,152
Selling, general and administrative
265
298
521
603
Employee termination, asset impairment and
other charges
2
9
25
17
Total operating expenses
802
885
1,636
1,772
Operating income (loss)
158
50
228
(79
)
Interest and other expense, net
(73
)
(90
)
(146
)
(198
)
Income (loss) before taxes
85
(40
)
82
(277
)
Income tax expense
23
99
80
138
Net income (loss)
$
62
$
(139
)
$
2
$
(415
)
Income (loss) per common share
Basic
$
0.20
$
(0.47
)
$
0.01
$
(1.40
)
Diluted
$
0.20
$
(0.47
)
$
0.01
$
(1.40
)
Weighted average shares outstanding:
Basic
305
298
304
297
Diluted
307
298
305
297
WESTERN DIGITAL
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited; on a
US GAAP basis)
Three Months Ended
Six Months Ended
January 1, 2021
January 3, 2020
January 1, 2021
January 3, 2020
Operating Activities
Net income (loss)
$
62
$
(139
)
$
2
$
(415
)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization
336
399
710
805
Stock-based compensation
80
77
156
154
Deferred income taxes
(16
)
(15
)
(5
)
(42
)
Loss on disposal of assets
—
(14
)
1
(12
)
Write-off of issuance costs and
amortization of debt discounts
10
10
20
20
Other non-cash operating activities,
net
(12
)
1
(18
)
(20
)
Changes in:
Accounts receivable, net
264
(344
)
546
(587
)
Inventories
(220
)
160
(505
)
155
Accounts payable
(29
)
15
70
170
Accounts payable to related parties
(10
)
(143
)
(13
)
33
Accrued expenses
101
227
78
327
Accrued compensation
25
116
51
191
Other assets and liabilities, net
(166
)
(93
)
(305
)
(269
)
Net cash provided by operating
activities
425
257
788
510
Investing Activities
Purchases of property, plant and
equipment, net
(207
)
(160
)
(537
)
(305
)
Acquisitions, net of cash acquired
—
—
—
(22
)
Activity related to Flash Ventures,
net
(69
)
280
94
466
Strategic Investments and Other, net
6
6
7
21
Net cash provided by (used in) investing
activities
(270
)
126
(436
)
160
Financing Activities
Employee stock plans, net
60
44
20
18
Dividends paid to shareholders
—
(149
)
—
(296
)
Repayment of debt
(248
)
(388
)
(461
)
(707
)
Other
(9
)
—
(9
)
—
Net cash used in financing activities
(197
)
(493
)
(450
)
(985
)
Effect of exchange rate changes on
cash
3
(1
)
6
(3
)
Net decrease in cash and cash
equivalents
(39
)
(111
)
(92
)
(318
)
Cash and cash equivalents, beginning of
period
2,995
3,248
3,048
3,455
Cash and cash equivalents, end of
period
$
2,956
$
3,137
$
2,956
$
3,137
WESTERN DIGITAL
CORPORATION
PRELIMINARY RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions;
unaudited)
Three Months Ended
Six Months Ended
January 1, 2021
January 3, 2020
January 1, 2021
January 3, 2020
GAAP cost of revenue
$
2,983
$
3,299
$
6,001
$
6,581
Amortization of acquired intangible
assets
(109
)
(157
)
(254
)
(321
)
Stock-based compensation expense
(15
)
(13
)
(27
)
(25
)
Charges related to cost saving
initiatives
—
(1
)
—
(1
)
Charges related to a power outage incident
and related recovery
45
—
75
(68
)
Other
—
8
—
8
Non-GAAP cost of revenue
$
2,904
$
3,136
$
5,795
$
6,174
GAAP gross profit
$
960
$
935
$
1,864
$
1,693
Amortization of acquired intangible
assets
109
157
254
321
Stock-based compensation expense
15
13
27
25
Charges related to cost saving
initiatives
—
1
—
1
Charges related to a power outage incident
and related recovery
(45
)
—
(75
)
68
Other
—
(8
)
—
(8
)
Non-GAAP gross profit
$
1,039
$
1,098
$
2,070
$
2,100
GAAP operating expenses
$
802
$
885
$
1,636
$
1,772
Amortization of acquired intangible
assets
(39
)
(39
)
(78
)
(80
)
Stock-based compensation expense
(65
)
(64
)
(129
)
(129
)
Employee termination, asset impairment and
other charges
(2
)
(9
)
(25
)
(17
)
Charges related to acquisitions and
dispositions
—
(2
)
—
(7
)
Charges related to cost saving
initiatives
—
(6
)
—
(7
)
Non-GAAP operating expenses
$
696
$
765
$
1,404
$
1,532
GAAP operating income (loss)
$
158
$
50
$
228
$
(79
)
Cost of revenue adjustments
79
163
206
407
Operating expense adjustments
106
120
232
240
Non-GAAP operating income
$
343
$
333
$
666
$
568
GAAP interest and other expense,
net
$
(73
)
$
(90
)
$
(146
)
$
(198
)
Convertible debt activity
7
7
14
14
Other
(2
)
2
(4
)
4
Non-GAAP interest and other expense,
net
$
(68
)
$
(81
)
$
(136
)
$
(180
)
GAAP income tax expense
$
23
$
99
$
80
$
138
Income tax adjustments
40
(34
)
42
(38
)
Non-GAAP income tax expense
$
63
$
65
$
122
$
100
WESTERN DIGITAL
CORPORATION
PRELIMINARY RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions, except per share
amounts; unaudited)
Three Months Ended
Six Months Ended
January 1, 2021
January 3, 2020
January 1, 2021
January 3, 2020
GAAP net income (loss)
$
62
$
(139
)
$
2
$
(415
)
Amortization of acquired intangible
assets
148
196
332
401
Stock-based compensation expense
80
77
156
154
Employee termination, asset impairment and
other charges
2
9
25
17
Charges related to acquisitions and
dispositions
—
2
—
7
Charges related to cost saving
initiatives
—
7
—
8
Charges related to a power outage incident
and related recovery
(45
)
—
(75
)
68
Convertible debt activity
7
7
14
14
Other
(2
)
(6
)
(4
)
(4
)
Income tax adjustments
(40
)
34
(42
)
38
Non-GAAP net income
$
212
$
187
$
408
$
288
Diluted income (loss) per common
share
GAAP
$
0.20
$
(0.47
)
$
0.01
$
(1.40
)
Non-GAAP
$
0.69
$
0.62
$
1.34
$
0.96
Diluted weighted average shares
outstanding:
GAAP
307
298
305
297
Non-GAAP
307
300
305
300
Cash flows
Cash flow provided by operating
activities
$
425
$
257
$
788
$
510
Purchase of property, plant and equipment,
net
(207
)
(160
)
(537
)
(305
)
Activity related to flash ventures,
net
(69
)
280
94
466
Free cash flow
$
149
$
377
$
345
$
671
To supplement the condensed consolidated financial statements
presented in accordance with U.S. generally accepted accounting
principles (“GAAP”), the table above sets forth non-GAAP cost of
revenue; non-GAAP gross profit; non-GAAP operating expenses;
non-GAAP operating income; non-GAAP interest and other expense,
net; non-GAAP income tax expense; non-GAAP net income; non-GAAP
diluted income per common share and free cash flow (“Non-GAAP
measures”). These Non-GAAP measures are not in accordance with, or
an alternative for, measures prepared in accordance with GAAP and
may be different from Non-GAAP measures used by other companies.
The company believes the presentation of these Non-GAAP measures,
when shown in conjunction with the corresponding GAAP measures,
provides useful information to investors for measuring the
company’s earnings performance and comparing it against prior
periods. Specifically, the company believes these Non-GAAP measures
provide useful information to both management and investors as they
exclude certain expenses, gains and losses that the company
believes are not indicative of its core operating results or
because they are consistent with the financial models and estimates
published by many analysts who follow the company and its peers. As
discussed further below, these Non-GAAP measures exclude, as
applicable, the amortization of acquired intangible assets,
stock-based compensation expense, employee termination, asset
impairment and other charges, charges related to acquisitions and
dispositions, charges related to cost saving initiatives, charges
related to a power outage incident and related recovery,
convertible debt activity, other adjustments, and income tax
adjustments, and the company believes these measures along with the
related reconciliations to the GAAP measures provide additional
detail and comparability for assessing the company's results. These
Non-GAAP measures are some of the primary indicators management
uses for assessing the company's performance and planning and
forecasting future periods. These measures should be considered in
addition to results prepared in accordance with GAAP, but should
not be considered a substitute for, or superior to, GAAP
results.
As described above, the company excludes the following items
from its Non-GAAP measures:
Amortization of acquired intangible
assets. The company incurs expenses from the amortization of
acquired intangible assets over their economic lives. Such charges
are significantly impacted by the timing and magnitude of the
company's acquisitions and any related impairment charges.
Stock-based compensation expense.
Because of the variety of equity awards used by companies, the
varying methodologies for determining stock-based compensation
expense, the subjective assumptions involved in those
determinations, and the volatility in valuations that can be driven
by market conditions outside the company's control, the company
believes excluding stock-based compensation expense enhances the
ability of management and investors to understand and assess the
underlying performance of its business over time and compare it
against the company's peers, a majority of whom also exclude
stock-based compensation expense from their non-GAAP results.
Employee termination, asset impairment and
other charges. From time-to-time, in order to realign the
company's operations with anticipated market demand or to achieve
cost synergies from the integration of acquisitions, the company
may terminate employees and/or restructure its operations. From
time-to-time, the company may also incur charges from the
impairment of intangible assets and other long-lived assets. These
charges (including any reversals of charges recorded in prior
periods) are inconsistent in amount and frequency, and the company
believes they are not indicative of the underlying performance of
its business.
Charges related to acquisitions and
dispositions. In connection with the company's business
combinations or dispositions, the company incurs expenses which it
would not have otherwise incurred as part of its business
operations. These expenses include third-party professional service
and legal fees, third-party integration services, severance costs,
non-cash adjustments to the fair value of acquired inventory,
contract termination costs, and retention bonuses. The company may
also experience other accounting impacts in connection with these
transactions. These charges and impacts are related to acquisitions
and dispositions, are inconsistent in amount and frequency, and the
company believes they are not indicative of the underlying
performance of its business.
Charges related to cost saving
initiatives. In connection with the transformation of the
company's business, the company incurred charges related to cost
saving initiatives which do not qualify for special accounting
treatment as exit or disposal activities. These charges, which the
company believes are not indicative of the underlying performance
of its business, primarily relate to costs associated with
rationalizing the company's channel partners or vendors,
transforming the company's information systems infrastructure,
integrating the company's product roadmap, and accelerated
depreciation of assets.
Charges related to a power outage incident
and related recovery. In June 2019, an unexpected power
outage incident occurred at the flash-based memory manufacturing
facilities operated through the company's joint venture with Kioxia
Corporation in Yokkaichi, Japan. The power outage incident resulted
in costs associated with the repair of damaged tools and the
write-off of damaged inventory and unabsorbed manufacturing
overhead costs which are expensed as incurred. In the fiscal first
and second quarters of 2021, the company received recoveries of
these losses from insurance carriers. These charges and recoveries
are inconsistent in amount and frequency, and the company believes
these charges or recoveries are not part of the ongoing production
operation of its business.
Convertible debt activity. The
company excludes non-cash economic interest expense associated with
its convertible notes. These charges do not reflect the company's
operating results, and the company believes they are not indicative
of the underlying performance of its business.
Other adjustments. From
time-to-time, the company incurs charges or gains that the company
believes are not a part of the ongoing operation of its business.
The resulting expense or benefit is inconsistent in amount and
frequency.
Income tax adjustments. Income tax
adjustments include the difference between income taxes based on a
forecasted annual non-GAAP tax rate and a forecasted annual GAAP
tax rate as a result of the timing of certain non-GAAP pre-tax
adjustments. The income tax adjustments also include adjustments to
estimates related to the current status of the rules and
regulations governing the transition to the Tax Cuts and Jobs Act.
These adjustments are excluded because they are infrequent and the
company believes that they are not indicative of the underlying
performance of its business.
Additionally, free cash flow is defined as cash flows provided
by operating activities less purchases of property, plant and
equipment, net of proceeds from sales of property, plant and
equipment, and the activity related to Flash Ventures, net. The
company considers free cash flow generated in any period to be a
useful indicator of cash that is available for strategic
opportunities including, among others, investing in the company's
business, making strategic acquisitions, repaying debt and
strengthening the balance sheet.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210128006030/en/
Investor Contact: Western Digital Corp. T. Peter Andrew
949.672.9655 peter.andrew@wdc.com investor@wdc.com Media
Contact: Sard Verbinnen & Co John Christiansen David Isaacs
Leah Polito WesternDigital-SVC@sardverb.com
Western Digital (NASDAQ:WDC)
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