shares are trading higher after hours on better-than-expected financial results for the company’s fiscal first quarter ended Sept. 30.
The disk-drive and flash-memory company posted revenue of $3.9 billion for the quarter, off 3% from a year ago but ahead of the Street consensus at $3.83 billion. Non-GAAP profits of 65 cents a share were nicely ahead of the Street at 54 cents.
Western Digital (ticker: WDC) said revenue in the client-devices segment was $1.95 billion, up 20% from a year ago, driven by growth in demand for solid-state drives used with laptops, desktop PCs, and Chromebooks. In the company’s data-center devices and solutions business, revenue was off 26%, due in part to lower data-center demand due to Covid-19-related shutdowns. Client-solutions revenue—the company’s retail business—was down 5% from a year ago.
For the December quarter, Western Digital sees revenue of $3.75 billion to $3.95 billion, with non-GAAP profits of 40 to 60 cents a share; previous consensus was $3.86 billion and 64 cents a share.
A few weeks ago, Western Digital announced a corporate reorganization, creating separate product development teams for hard drives and flash-memory products. The company had previously named former
exec Rob Soderbery to run the flash business; today Western named Ashley Gorakhpurwalla, previously a longtime Dell EMC executive, to run the hard-drive business.
CEO David Goeckeler told Barron’s that the reorganization is intended to create the best of both worlds—to have a sales team selling both flash and hard-drive products, but with independent production teams on the two halves of the business. He notes that Western’s top 20 customers all buy both flash and hard-drive products from the company. Goeckeler played down speculation that followed the announcement about a potential split into two businesses. He sees this as a “better together” story.
Goeckeler notes that the company is seeing strong demand from the videogaming market, which he says now accounts for about 10% of the company’s flash-memory sales, up from zero a few quarters ago. He says that includes both sales to console vendors and new products for the retail channel, where the company is offering memory for console expansion slots. He notes that a recent launch event for its gaming products on Twitch was streamed by 872,000 gamers.
As for the weakness in data-center demand, he says there are two issues. One, the pandemic has slowed the installation of servers in corporate data centers. The other is that cloud customers are in “a digestion period” which he thinks should get better in 2021.
Asked about pricing trends in flash, Goeckeler says that the industry has been disciplined on capital spending. The pandemic has created “huge distortions” in the market, he says, but he sees demand growth ahead, driven by the ramp of new gaming consoles, the emergence of 5G smartphones and growth in cloud computing, which voraciously uses solid-state drives. And he says that signs of consolidation in the sector—
(INTC) recently announced plans to sell its flash business to
(000660.Korea)—is a positive sign for the industry. He notes that Western together with its flash manufacturing joint-venture partner Kioxia together are the single largest NAND producer.
Meanwhile, Goeckeler says, the company remains focused on both investing in the business and paying down debt. He notes that in the latest quarter, it made an optional $150 million debt payment, and says it will continue to use free cash flow to whittle down the total, which stood at $9.1 billion at quarter end.
In late trading, Western Digital shares have rallied 3.3%, to $40.10.
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