Hard drive manufacturer Western Digital expects revenue to slow during the December quarter, and net earnings will come down by around 22%, because of muted demand for PCs due to the global economic slowdown and increasing sales of tablets and smartphones.
The group's share price closed slightly higher on the Nasdaq yesterday, at $35.28, a $0.4 or 1.15% gain, before losing ground in after-hours trade to $33.07, a 6.26% drop-off.
Western Digital is one of the world's largest hard drive manufacturers and saw its last financial year impacted by flooding in Thailand, which limited its production abilities.
Speaking during a conference call on the company's first-quarter results, president Steve Milligan said there are several dynamics limiting market demand, including global macro-economic weakness, which is impacting overall IT spending, as well as the continued adoption of tablets and smartphones, leading to muted PC sales growth.
Lower demand
Wolfgang Nickl, executive VP for finance and CFO, says revenue in the December quarter is expected to decline because of the current "muted" demand. In the September quarter, Western Digital turned over $4 billion, but turnover in the next three months is expected to be between $3.55 billion and $3.7 billion.
Nickl says lower expected turnover reflects the muted demand environment, a seasonal reduction in its gaming business, and a planned reduction of its 3.5-inch contract manufacturing for Toshiba.
IDC says global PC sales contracted sharply in the third quarter of the year, dropping 8.6% year-on-year, while Gartner puts the drop at 8.3%.
There should be a total available market of around 140 million units in the December quarter, says Nickl. In the first quarter to September, Western Digital shipped 62.5 million hard drives at an average price of $62, which excludes its shipments to Toshiba under its divestiture agreement.
Original equipment manufacturer sales accounted for the bulk of revenue, at 63%, while the distribution channel contributed 24%, and retail sales the balance.
Western Digital declared its first ever dividend of $0.25, which amounted to $61 million. It ended the period with cash and cash equivalents of $3.5 billion, and net cash of $1.4 billion.
For the second quarter, Western Digital estimates non-Generally Accepted Accounting Principles (GAAP) earnings per share of between $1.65 and $1.85. In the first quarter, on a non-GAAP basis, net income was $2.36 per share.
Long-term confidence
CEO John Coyne says although the macro-economic environment is dampening near-term demand, the company is confident of continued long-term growth in creation, storage and management of digital content. "This is being seen in every aspect of our lives and monetising it provides a compelling long-term opportunity for the company."
Coyne, presiding over his last set of results after 30 years with the company, and six at its helm, says the company has "never been better positioned to succeed".
Milligan adds that, despite the "headwinds", the "Western Digital team remains focused on creating outstanding economic value, building on our strong multi-year track record.
"There is a tremendous opportunity as we innovate and enable customers to store, manage and connect the massive and growing amounts of digital data in their personal and professional lives. This opportunity extends well into the future."
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