News Summary
- Third quarter revenue was $4.1 billion, down 1% year-over-year
(YoY). Client Devices revenue increased 10%, Data Center Devices
and Solutions revenue declined 19%, and Client Solutions revenue
increased 8% YoY.
- Third quarter GAAP earnings per share (EPS) was $0.63 and
non-GAAP EPS was $1.02.
- Generated operating cash flow of $116 million and free cash
flow was negative $11 million in the third quarter.
- Expecting fiscal fourth quarter 2021 revenue to be in the range
of $4.40 billion to $4.60 billion with non-GAAP EPS in the range of
$1.30 to $1.60.
Western Digital Corp. (Nasdaq: WDC) today reported fiscal third
quarter 2021 financial results.
“We reported solid results above the guidance range, driven by
increasing momentum of our energy-assisted drives and our
second-generation NVMe enterprise SSDs, improving NAND flash
pricing trends, along with the continued accelerated digital
transformation across end markets,” said David Goeckeler, Western
Digital CEO. “Western Digital’s strengths in technology and cost
leadership, expansive product portfolio and broad routes to market
are providing a foundation upon which we are solidifying our
position as an essential building block of the digital economy.
These strengths, combined with our increased operational and
strategic focus enabled by our new business unit structure, are
driving results. As we continue to face a dynamic environment, we
are seeing the benefits of the synergistic value in the breadth of
Western Digital’s portfolio, and our unique ability to deliver both
hard drive and flash solutions to our diverse end-markets and
customer base.”
Q3 2021 Financial Highlights
GAAP
Non-GAAP
Q3 2021
Q3 2020
vs. Q3 2020
Q3 2021
Q3 2020
vs. Q3 2020
Revenue ($M)
$4,137
$4,175
down 1%
$4,137
$4,175
down 1%
Gross Margin
26.4%
24.1%
up 2.3 ppt
27.7%
27.9%
down 0.2 ppt
Operating Expenses ($M)
$774
$852
down 9%
$732
$738
down 1%
Operating Income ($M)
$317
$153
up 107%
$412
$427
down 4%
Net Income ($M)
$197
$17
up 1059%
$318
$257
up 24%
Earnings Per Share
$0.63
$0.06
up 950%
$1.02
$0.85
up 20%
The company generated $116 million in cash flow from operations,
made a total debt repayment of $212 million, and ended the quarter
with $2.7 billion of total cash and cash equivalents. There were
313 million ordinary shares outstanding at the end of the
quarter.
Additional details can be found within the company’s earnings
presentation, which is accessible online at investor.wdc.com.
Key End Market Summary
Revenue ($M)
Q3 2021
Q3 2020
vs. Q3 2020
Client Devices
$2,012
$1,831
up 10%
Data Center Devices & Solutions
$1,237
$1,523
down 19%
Client Solutions
$888
$821
up 8%
Total Revenue
$4,137
$4,175
down 1%
In the fiscal third quarter of 2021, Western Digital’s revenue
decreased 1% year-over-year to $4.1 billion, driven by a decline in
Data Center Devices & Solutions offset by strong performance in
gaming and consumer markets.
In Client Devices, continued strength in notebook and desktop PC
demand, along with new game console ramps, drove solid revenue
growth.
In Data Center Devices and Solutions, while revenue was down 19%
from the prior year, Western Digital experienced significant
sequential growth with its second generation, NVMe enterprise SSD
at a cloud titan. In addition, many cloud customers also utilize
NAND flash for their consumer product lines, creating additional
end market opportunities for Western Digital as the company
continues to diversify and balance the end markets served.
Qualifications of Western Digital’s energy-assisted hard drives
have also been completed with nearly all cloud and enterprise
customers, including all cloud titans.
In Client Solutions, revenue increased due to strength in
retail, which remains a high performing end market, as Western
Digital’s brand recognition, broad product portfolio, and extensive
distribution channels continue to distinguish Western Digital from
its competitors.
Business Outlook for Fiscal Fourth Quarter of 2021
Three Months Ending
July 2, 2021
GAAP(1)
Non-GAAP(1)
Revenue ($B)
$4.40 - $4.60
$4.40 - $4.60
Gross margin
29.0% - 31.0%
30.0% - 32.0%
Operating expenses ($M)
$860 - $890
$760 - $790
Interest and other expense, net ($M)
$75 - $80
$68 - $73
Tax rate
N/A
~ 17% (2)
Diluted earnings per share
N/A
$1.30 - $1.60
Diluted shares outstanding (in
millions)
~ 317
~ 317
______________________
(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 $90 million to $110 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
$140 million to $180 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. Due to differences in the tax treatment of
items excluded from our non-GAAP net income and because our tax
rate is based on an estimated forecasted annual GAAP tax rate, our
estimated non-GAAP tax rate may differ from our GAAP tax rate and
from our actual tax rates.
Investor Communications
The investment community conference call to discuss these
results and the company’s business outlook for the fiscal fourth
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 third quarter ended April 2, 2021;
the company’s business outlook for the fiscal fourth quarter of
2021; our market position and portfolio synergies; consumer trends
and market conditions; and expectations regarding pricing trends,
product momentum, diversification strategies and market
opportunities. 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 third
quarter ended April 2, 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)
April 2, 2021
July 3, 2020
ASSETS
Current assets:
Cash and cash equivalents
$
2,734
$
3,048
Accounts receivable, net
1,905
2,379
Inventories
3,683
3,070
Other current assets
710
551
Total current assets
9,032
9,048
Property, plant and equipment, net
3,061
2,854
Notes receivable and investments in Flash
Ventures
1,694
1,875
Goodwill
10,066
10,067
Other intangible assets, net
519
941
Other non-current assets
1,037
877
Total assets
$
25,409
$
25,662
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
1,807
$
1,945
Accounts payable to related parties
397
407
Accrued expenses
1,552
1,296
Accrued compensation
494
472
Current portion of long-term debt
251
286
Total current liabilities
4,501
4,406
Long-term debt
8,678
9,289
Other liabilities
2,281
2,416
Total liabilities
15,460
16,111
Total shareholders’ equity
9,949
9,551
Total liabilities and shareholders’
equity
$
25,409
$
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
Nine Months Ended
April 2, 2021
April 3, 2020
April 2, 2021
April 3, 2020
Revenue, net
$
4,137
$
4,175
$
12,002
$
12,449
Cost of revenue
3,046
3,170
9,047
9,751
Gross profit
1,091
1,005
2,955
2,698
Operating expenses:
Research and development
555
563
1,645
1,715
Selling, general and administrative
287
281
808
884
Employee termination, asset impairment and
other charges
(68
)
8
(43
)
25
Total operating expenses
774
852
2,410
2,624
Operating income
317
153
545
74
Interest and other expense, net
(68
)
(107
)
(214
)
(305
)
Income (loss) before taxes
249
46
331
(231
)
Income tax expense
52
29
132
167
Net income (loss)
$
197
$
17
$
199
$
(398
)
Income (loss) per common share
Basic
$
0.64
$
0.06
$
0.65
$
(1.34
)
Diluted
$
0.63
$
0.06
$
0.65
$
(1.34
)
Weighted average shares outstanding:
Basic
306
299
305
298
Diluted
313
303
308
298
WESTERN DIGITAL
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions; unaudited; on a
US GAAP basis)
Three Months Ended
Nine Months Ended
April 2, 2021
April 3, 2020
April 2, 2021
April 3, 2020
Operating Activities
Net income (loss)
$
197
$
17
$
199
$
(398
)
Adjustments to reconcile net income (loss)
to net cash provided by operations:
Depreciation and amortization
251
384
961
1,189
Stock-based compensation
83
78
239
232
Deferred income taxes
(36
)
(11
)
(41
)
(53
)
Loss (gain) on disposal of assets
(66
)
3
(65
)
(9
)
Write-off of issuance costs and
amortization of debt discounts
10
10
30
30
Other non-cash operating activities,
net
(8
)
12
(26
)
(8
)
Changes in:
Accounts receivable, net
(72
)
(187
)
474
(774
)
Inventories
(108
)
24
(613
)
179
Accounts payable
(209
)
(39
)
(139
)
131
Accounts payable to related parties
3
33
(10
)
66
Accrued expenses
173
4
251
331
Accrued compensation
(29
)
(104
)
22
87
Other assets and liabilities, net
(73
)
(82
)
(378
)
(351
)
Net cash provided by operating
activities
116
142
904
652
Investing Activities
Purchases of property, plant and
equipment, net
(162
)
(127
)
(699
)
(432
)
Acquisitions, net of cash acquired
—
—
—
(22
)
Activity related to Flash Ventures,
net
35
161
129
627
Strategic Investments and Other, net
1
(2
)
8
19
Net cash provided by (used in) investing
activities
(126
)
32
(562
)
192
Financing Activities
Employee stock plans, net
—
(8
)
20
10
Dividends paid to shareholders
—
(149
)
—
(445
)
Repayment of debt
(212
)
(212
)
(673
)
(919
)
Other
—
—
(9
)
—
Net cash used in financing activities
(212
)
(369
)
(662
)
(1,354
)
Effect of exchange rate changes on
cash
—
1
6
(2
)
Net decrease in cash and cash
equivalents
(222
)
(194
)
(314
)
(512
)
Cash and cash equivalents, beginning of
period
2,956
3,137
3,048
3,455
Cash and cash equivalents, end of
period
$
2,734
$
2,943
$
2,734
$
2,943
WESTERN DIGITAL
CORPORATION
PRELIMINARY RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions;
unaudited)
Three Months Ended
Nine Months Ended
April 2, 2021
April 3, 2020
April 2, 2021
April 3, 2020
GAAP cost of revenue
$
3,046
$
3,170
$
9,047
$
9,751
Amortization of acquired intangible
assets
(39
)
(145
)
(293
)
(466
)
Stock-based compensation expense
(14
)
(13
)
(41
)
(38
)
Charges related to cost saving
initiatives
—
(2
)
—
(3
)
Charges related to a power outage incident
and related recovery
—
—
75
(68
)
Other
—
—
—
8
Non-GAAP cost of revenue
$
2,993
$
3,010
$
8,788
$
9,184
GAAP gross profit
$
1,091
$
1,005
$
2,955
$
2,698
Amortization of acquired intangible
assets
39
145
293
466
Stock-based compensation expense
14
13
41
38
Charges related to cost saving
initiatives
—
2
—
3
Charges related to a power outage incident
and related recovery
—
—
(75
)
68
Other
—
—
—
(8
)
Non-GAAP gross profit
$
1,144
$
1,165
$
3,214
$
3,265
GAAP operating expenses
$
774
$
852
$
2,410
$
2,624
Amortization of acquired intangible
assets
(39
)
(40
)
(117
)
(120
)
Stock-based compensation expense
(69
)
(65
)
(198
)
(194
)
Employee termination, asset impairment and
other charges
68
(8
)
43
(25
)
Charges related to acquisitions and
dispositions
—
(2
)
—
(9
)
Charges related to cost saving
initiatives
(1
)
1
(1
)
(6
)
Other
(1
)
—
(1
)
—
Non-GAAP operating expenses
$
732
$
738
$
2,136
$
2,270
GAAP operating income (loss)
$
317
$
153
$
545
$
74
Cost of revenue adjustments
53
160
259
567
Operating expense adjustments
42
114
274
354
Non-GAAP operating income
$
412
$
427
$
1,078
$
995
GAAP interest and other expense,
net
$
(68
)
$
(107
)
$
(214
)
$
(305
)
Convertible debt activity
7
7
21
21
Other
(6
)
9
(10
)
13
Non-GAAP interest and other expense,
net
$
(67
)
$
(91
)
$
(203
)
$
(271
)
GAAP income tax expense
$
52
$
29
$
132
$
167
Income tax adjustments
(25
)
50
17
12
Non-GAAP income tax expense
$
27
$
79
$
149
$
179
WESTERN DIGITAL
CORPORATION
PRELIMINARY RECONCILIATION OF
GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions, except per share
amounts; unaudited)
Three Months Ended
Nine Months Ended
April 2, 2021
April 3, 2020
April 2, 2021
April 3, 2020
GAAP net income (loss)
$
197
$
17
$
199
$
(398
)
Amortization of acquired intangible
assets
78
185
410
586
Stock-based compensation expense
83
78
239
232
Employee termination, asset impairment and
other charges
(68
)
8
(43
)
25
Charges related to acquisitions and
dispositions
—
2
—
9
Charges related to cost saving
initiatives
1
1
1
9
Charges related to a power outage incident
and related recovery
—
—
(75
)
68
Convertible debt activity
7
7
21
21
Other
(5
)
9
(9
)
5
Income tax adjustments
25
(50
)
(17
)
(12
)
Non-GAAP net income
$
318
$
257
$
726
$
545
Diluted income (loss) per common
share
GAAP
$
0.63
$
0.06
$
0.65
$
(1.34
)
Non-GAAP
$
1.02
$
0.85
$
2.36
$
1.81
Diluted weighted average shares
outstanding:
GAAP
313
299
308
298
Non-GAAP
313
303
308
301
Cash flows
Cash flow provided by operating
activities
$
116
$
142
$
904
$
652
Purchase of property, plant and equipment,
net
(162
)
(127
)
(699
)
(432
)
Activity related to flash ventures,
net
35
161
129
627
Free cash flow
$
(11
)
$
176
$
334
$
847
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. In
addition, the company may record credits related to gains upon sale
of property due to restructuring or reversals of charges recorded
in prior periods. These charges or credits 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 the company believes that
they are not indicative of the underlying performance of its
ongoing 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/20210429005986/en/
Western Digital Corp.
Investor Contact: T. Peter Andrew 949.672.9655
peter.andrew@wdc.com investor@wdc.com
Media Contact: Lisa Neitzel 408.717.7607
lisa.neitzel@wdc.com
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