News Summary
- Second quarter revenue was $3.11 billion, at the high end of
the guidance range.
- Second quarter GAAP earnings per share (EPS) was $(1.40) and
Non-GAAP EPS was $(0.42), which includes $100 million of
underutilization related charges in HDD.
- Second quarter GAAP operating loss was $321 million and
Non-GAAP operating loss was $119 million.
- Expect fiscal third quarter 2023 revenue to be in the range of
$2.60 billion to $2.80 billion.
- Expect Non-GAAP EPS in the range of $(1.70) to $(1.40) which
includes underutilization charges in flash and HDD totaling $250
million, with flash driven by a 30% reduction in wafer starts
beginning in January.
Western Digital Corp. (Nasdaq: WDC) today reported fiscal second
quarter 2023 financial results.
“The Western Digital team delivered revenue at the high end of
our guidance range, despite a challenging flash price environment
and continued cloud inventory digestion,” said David Goeckeler,
Western Digital CEO. “We continue to take action to reset the
business in response to the post-pandemic environment by optimizing
our cost structure and strengthening our liquidity. These actions,
including strategically reducing our capital expenditures across
both flash and HDD and our operating expenses, as well as amending
our financial covenants and securing recent financings, will give
us the financial flexibility and optionality to weather this cycle,
while also positioning us to continue executing our product roadmap
and furthering our technical leadership over the long term.”
Q2 2023 Financial Highlights
GAAP
Non-GAAP
Q2 2023
Q1 2023
Q/Q
Q2 2023
Q1 2023
Q/Q
Revenue ($M)
$
3,107
$
3,736
down 17%
$
3,107
$
3,736
down 17%
Gross Margin
17.0
%
26.3
%
down 9.3 ppt
17.4
%
26.7
%
down 9.3 ppt
Operating Expenses ($M)
$
849
$
823
up 3%
$
659
$
689
down 4%
Operating Income (Loss) ($M)
$
(321
)
$
158
*
$
(119
)
$
307
*
Net Income (Loss) ($M)
$
(446
)
$
27
*
$
(135
)
$
64
*
Earnings Per Share
$
(1.40
)
$
0.08
*
$
(0.42
)
$
0.20
*
* not a meaningful figure
GAAP
Non-GAAP
Q2 2023
Q2 2022
Y/Y
Q2 2023
Q2 2022
Y/Y
Revenue ($M)
$
3,107
$
4,833
down 36%
$
3,107
$
4,833
down 36%
Gross Margin
17.0
%
32.8
%
down 15.8 ppt
17.4
%
33.6
%
down 16.2 ppt
Operating Expenses ($M)
$
849
$
856
down 1%
$
659
$
741
down 11%
Operating Income (Loss) ($M)
$
(321
)
$
727
*
$
(119
)
$
882
*
Net Income (Loss) ($M)
$
(446
)
$
564
*
$
(135
)
$
724
*
Earnings Per Share
$
(1.40
)
$
1.79
*
$
(0.42
)
$
2.30
*
* not a meaningful figure
The company generated $35 million in cash flow from operations
and ended the quarter with $1.87 billion of total cash and cash
equivalents.
Additional details can be found within the company’s earnings
presentation, which is accessible online at investor.wdc.com.
End Market Summary
Revenue ($M)
Q2 2023
Q1 2023
Q/Q
Q2 2022
Y/Y
Cloud
$
1,224
$
1,829
down 33%
$
1,920
down 36%
Client
1,089
1,229
down 11%
1,854
down 41%
Consumer
794
678
up 17%
1,059
down 25%
Total Revenue
$
3,107
$
3,736
down 17%
$
4,833
down 36%
In the fiscal second quarter:
- Cloud represented 39% of total revenue. Sequentially, declines
in both capacity enterprise drives sold to Cloud customers and
smart video customers were partly offset by an increase in flash
shipments. The year-over-year decline was primarily due to
inventory digestion in hard drives.
- Client represented 35% of total revenue. Sequentially, the
decline was driven by pricing pressure across our flash products,
which was partly offset by an increase in hard drive shipments. The
year-over-year decline was also due to pricing pressure in flash as
well as lower client SSD shipments for PC applications.
- Consumer represented 26% of revenue. Sequentially, the increase
was driven by a seasonal uptick in both retail hard drives and
flash. The year-over-year decline was driven by lower retail hard
drive shipments and pricing pressure in flash.
Business Outlook for Fiscal Third
Quarter of 2023
Three Months Ending
March 31, 2023
GAAP(1)
Non-GAAP(1)
Revenue ($B)
$2.60 - $2.80
$2.60 - $2.80
Gross margin
8.4% - 10.5%
9.0% - 11.0%
Operating expenses ($M)
$710 - $730
$600 - $620
Interest and other expense, net ($M)
~$90
~$90
Tax expense ($M)(2)
N/A
$60 - $70
Diluted earnings per share
N/A
$(1.70) - $(1.40)
Diluted shares outstanding (in
millions)
~319
~319
(1) Non-GAAP gross margin guidance excludes stock-based
compensation expense of approximately $10 million to $15 million.
The company’s Non-GAAP operating expenses guidance excludes
amortization of acquired intangible assets and stock-based
compensation expense, totaling approximately $100 million to $120
million. In the aggregate, Non-GAAP diluted earnings per share
guidance excludes these items totaling $110 million to $135
million. The timing and amount of these charges excluded from
Non-GAAP gross margin, Non-GAAP operating expenses, 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
expense 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 tax expense and
Non-GAAP diluted earnings per share to the most directly comparable
GAAP financial measures (income tax expense and diluted earnings
per share, respectively) are not available without unreasonable
effort.
(2) Due to differences in the tax treatment of items excluded
from our Non-GAAP net income and because our GAAP taxes recorded in
any interim period are dependent on the timing and determination of
certain GAAP operating expenses, our estimated Non-GAAP tax dollars
may differ from our GAAP tax dollars.
Investor Communications
The investment community conference call to discuss these
results and the company’s business outlook for the fiscal third
quarter of 2023 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 is on a mission to unlock the potential of data
by harnessing the possibility to use it. With Flash and HDD
franchises, underpinned by advancements in memory technologies, we
create breakthrough innovations and powerful data storage solutions
that enable the world to actualize its aspirations. Core to our
values, we recognize the urgency to combat climate change and have
committed to ambitious carbon reduction goals approved by the
Science Based Targets initiative. Learn more about Western Digital
and the Western Digital®, SanDisk® and WD® brands at
www.westerndigital.com.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of federal securities laws, including statements
regarding expectations for the company’s business outlook and
financial performance for both fiscal third quarter of 2023 and
longer term; demand trends; market conditions; product innovations;
market access; and cost reductions. 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 December 30, 2022
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: volatility in global
economic conditions; future responses to and effects of the
COVID-19 pandemic or other similar global health crises; impact of
business and market conditions; the outcome and impact of our
ongoing strategic review, including with respect to customer and
supplier relationships, regulatory and contractual restrictions,
stock price volatility and the diversion of management's attention
from ongoing business operations and opportunities; 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 level of debt and other financial
obligations; changes to our relationships with key customers;
disruptions in operations from cybersecurity incidents 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 25, 2022, 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 or revise these
forward-looking statements to reflect new information or events,
except as required by law.
Western Digital, the Western Digital logo, 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)
December 30,
2022
July 1, 2022
ASSETS
Current assets:
Cash and cash equivalents
$
1,871
$
2,327
Accounts receivable, net
1,905
2,804
Inventories
3,773
3,638
Other current assets
832
684
Total current assets
8,381
9,453
Property, plant and equipment, net
3,688
3,670
Notes receivable and investments in Flash
Ventures
1,357
1,396
Goodwill
10,041
10,041
Other intangible assets, net
135
213
Other non-current assets
1,445
1,486
Total assets
$
25,047
$
26,259
LIABILITIES AND SHAREHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
1,193
$
1,902
Accounts payable to related
parties
368
320
Accrued expenses
1,410
1,636
Income taxes payable
1,025
869
Accrued compensation
348
510
Current portion of long-term
debt
38
—
Total current liabilities
4,382
5,237
Long-term debt
7,033
7,022
Other liabilities
1,517
1,779
Total liabilities
12,932
14,038
Total shareholders’ equity
12,115
12,221
Total liabilities and
shareholders’ equity
$
25,047
$
26,259
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
December 30,
2022
December 31,
2021
December 30,
2022
December 31,
2021
Revenue, net
$
3,107
$
4,833
$
6,843
$
9,884
Cost of revenue
2,579
3,250
5,334
6,636
Gross profit
528
1,583
1,509
3,248
Operating expenses:
Research and development
523
575
1,075
1,153
Selling, general and
administrative
250
279
497
570
Employee termination, asset
impairment and other charges
76
2
100
20
Total operating expenses
849
856
1,672
1,743
Operating income (loss)
(321
)
727
(163
)
1,505
Interest and other expense, net
(64
)
(81
)
(138
)
(155
)
Income (loss) before taxes
(385
)
646
(301
)
1,350
Income tax expense
61
82
118
176
Net income (loss)
$
(446
)
$
564
$
(419
)
$
1,174
Income (loss) per common share:
Basic
$
(1.40
)
$
1.81
$
(1.32
)
$
3.77
Diluted
$
(1.40
)
$
1.79
$
(1.32
)
$
3.73
Weighted average shares outstanding:
Basic
318
312
317
311
Diluted
318
315
317
315
WESTERN DIGITAL CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in
millions; unaudited; on a US GAAP basis)
Three Months Ended
Six Months Ended
December 30,
2022
December 31,
2021
December 30,
2022
December 31,
2021
Operating Activities
Net income (loss)
$
(446
)
$
564
$
(419
)
$
1,174
Adjustments to reconcile net income to net
cash provided by operations:
Depreciation and
amortization
214
242
430
492
Stock-based compensation
86
87
172
163
Deferred income taxes
67
11
25
38
Non-cash portion of asset
impairment
15
—
15
—
Loss on disposal of assets
—
1
1
1
Amortization of debt issuance
costs and discounts
2
11
5
21
Other non-cash operating
activities, net
25
25
69
13
Changes in:
Accounts receivable, net
517
(298
)
899
(486
)
Inventories
89
(103
)
(135
)
(30
)
Accounts payable
(396
)
137
(521
)
96
Accounts payable to related
parties
74
11
49
(9
)
Accrued expenses
(182
)
82
(226
)
81
Income taxes payable
39
1
156
(34
)
Accrued compensation
(58
)
1
(162
)
(66
)
Other assets and liabilities,
net
(11
)
(106
)
(317
)
(267
)
Net cash provided by operating
activities
35
666
41
1,187
Investing Activities
Purchases of property, plant and
equipment, net
(258
)
(294
)
(578
)
(539
)
Activity related to Flash Ventures,
net
(17
)
35
82
(17
)
Strategic Investments and other, net
17
2
14
(13
)
Net cash used in investing
activities
(258
)
(257
)
(482
)
(569
)
Financing Activities
Employee stock plans, net
43
56
(7
)
(20
)
Repayment of debt and revolving credit
facility, net
—
(1,214
)
—
(1,427
)
Debt issuance costs
(5
)
(9
)
(5
)
(9
)
Net cash provided by (used in)
financing activities
38
(1,167
)
(12
)
(1,456
)
Effect of exchange rate changes on
cash
7
(1
)
(3
)
(1
)
Net decrease in cash and cash
equivalents
(178
)
(759
)
(456
)
(839
)
Cash and cash equivalents, beginning of
period
2,049
3,290
2,327
3,370
Cash and cash equivalents, end of
period
$
1,871
$
2,531
$
1,871
$
2,531
WESTERN DIGITAL CORPORATION
Supplemental Operating Segment Results (in millions; except
percentages; unaudited)
Three Months Ended
Six Months Ended
December 30,
2022
December 31,
2021
December 30,
2022
December 31,
2021
Net revenue:
Flash
$
1,657
$
2,620
$
3,379
$
5,110
HDD
1,450
2,213
3,464
4,774
Total net revenue
$
3,107
$
4,833
$
6,843
$
9,884
Gross profit:
Flash
$
240
$
946
$
662
$
1,867
HDD
300
677
874
1,469
Total gross profit for
segments
540
1,623
1,536
3,336
Unallocated corporate
items:
Stock-based compensation
expense
(12
)
(14
)
(26
)
(23
)
Amortization of acquired
intangible assets
—
(26
)
(1
)
(65
)
Total unallocated corporate
items
(12
)
(40
)
(27
)
(88
)
Consolidated gross profit
$
528
$
1,583
$
1,509
$
3,248
Gross margin:
Flash
14.5
%
36.1
%
19.6
%
36.5
%
HDD
20.7
%
30.6
%
25.2
%
30.8
%
Total gross margin for
segments
17.4
%
33.6
%
22.4
%
33.8
%
Consolidated gross margin
17.0
%
32.8
%
22.1
%
32.9
%
The Company manages and reports under two reportable segments:
flash-based products (“Flash”) and hard disk drives (“HDD”). In the
table above, total gross profit for segments and total gross margin
for segments are Non-GAAP financial measures, which are also
referred to herein as Non-GAAP gross profit and Non-GAAP gross
margin, respectively.
WESTERN DIGITAL CORPORATION
PRELIMINARY RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(in millions; unaudited)
Three Months Ended
Six Months Ended
December 30,
2022
September 30,
2022
December 31,
2021
December 30,
2022
December 31,
2021
GAAP cost of revenue
$
2,579
$
2,755
$
3,250
$
5,334
$
6,636
Stock-based compensation
expense
(12
)
(14
)
(14
)
(26
)
(23
)
Amortization of acquired
intangible assets
—
(1
)
(26
)
(1
)
(65
)
Non-GAAP cost of revenue
$
2,567
$
2,740
$
3,210
$
5,307
$
6,548
GAAP gross profit
$
528
$
981
$
1,583
$
1,509
$
3,248
Stock-based compensation
expense
12
14
14
26
23
Amortization of acquired
intangible assets
—
1
26
1
65
Non-GAAP gross profit
$
540
$
996
$
1,623
$
1,536
$
3,336
GAAP operating expenses
$
849
$
823
$
856
$
1,672
$
1,743
Stock-based compensation
expense
(74
)
(72
)
(73
)
(146
)
(140
)
Amortization of acquired
intangible assets
(39
)
(38
)
(38
)
(77
)
(77
)
Employee termination, asset
impairment and other charges
(76
)
(24
)
(2
)
(100
)
(20
)
Other
(1
)
—
(2
)
(1
)
(4
)
Non-GAAP operating expenses
$
659
$
689
$
741
$
1,348
$
1,502
GAAP operating income (loss)
$
(321
)
$
158
$
727
$
(163
)
$
1,505
Cost of revenue adjustments
12
15
40
27
88
Operating expense
adjustments
190
134
115
324
241
Non-GAAP operating income
(loss)
$
(119
)
$
307
$
882
$
188
$
1,834
GAAP interest and other expense,
net
$
(64
)
$
(74
)
$
(81
)
$
(138
)
$
(155
)
Non-cash economic interest and Other
—
(1
)
13
(1
)
19
Non-GAAP interest and other expense,
net
$
(64
)
$
(75
)
$
(68
)
$
(139
)
$
(136
)
GAAP income tax expense
$
61
$
57
$
82
$
118
$
176
Income tax adjustments
(109
)
111
8
2
11
Non-GAAP income tax expense
$
(48
)
$
168
$
90
$
120
$
187
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
December 30,
2022
September 30,
2022
December 31,
2021
December 30,
2022
December 31,
2021
GAAP Net income (loss)
$
(446
)
$
27
$
564
$
(419
)
$
1,174
Stock-based compensation
expense
86
86
87
172
163
Amortization of acquired
intangible assets
39
39
64
78
142
Employee termination, asset
impairment and other charges
76
24
2
100
20
Non-cash economic interest and
Other
1
(1
)
15
—
23
Income tax adjustments
109
(111
)
(8
)
(2
)
(11
)
Non-GAAP net income (loss)
$
(135
)
$
64
$
724
$
(71
)
$
1,511
Diluted income (loss) per common
share
GAAP
$
(1.40
)
$
0.08
$
1.79
$
(1.32
)
$
3.73
Non-GAAP
$
(0.42
)
$
0.20
$
2.30
$
(0.22
)
$
4.80
Diluted weighted average shares
outstanding:
GAAP
318
319
315
317
315
Non-GAAP
318
319
315
317
315
Cash flows
Cash flow provided by operating
activities
$
35
$
6
$
666
$
41
$
1,187
Purchases of property, plant
and equipment, net
(258
)
(320
)
(294
)
(578
)
(539
)
Activity related to Flash
Ventures, net
(17
)
99
35
82
(17
)
Free cash flow
$
(240
)
$
(215
)
$
407
$
(455
)
$
631
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 gross margin; Non-GAAP
operating expenses; Non-GAAP operating income and loss; Non-GAAP
interest and other expense, net; Non-GAAP income tax expense;
Non-GAAP net income and loss; Non-GAAP diluted income and loss 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,
stock-based compensation expense, amortization of acquired
intangible assets, employee termination, asset impairment and other
charges, non-cash economic interest, 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:
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.
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.
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.
Non-cash economic interest. 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
and the re-measurement of certain unrecognized tax benefits
primarily related to tax positions taken in prior quarters,
including interest. 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, 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/20230131005905/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
Western Digital (NASDAQ:WDC)
Historical Stock Chart
From Mar 2024 to Apr 2024
Western Digital (NASDAQ:WDC)
Historical Stock Chart
From Apr 2023 to Apr 2024