Western Digital Reports Fiscal Third Quarter 2022 Financial Results

Cindy Apt

News Summary

  • Revenue was $4.38 billion, up 6% year-over-year (YoY). Cloud revenue increased by 25%, Client revenue declined by 2%, and Consumer revenue declined 8% YoY.

SAN JOSE, Calif., April 28, 2022–(BUSINESS WIRE)–Western Digital Corp. (Nasdaq: WDC) today reported fiscal third quarter 2022 financial results.

“The entire Western Digital team worked together to deliver excellent financial performance while navigating a dynamic geopolitical and macroeconomic environment, as well as ongoing supply challenges. This has all been made possible by the operational and portfolio improvements we have made over the last couple of years, which enable us to unlock the earnings power of the Western Digital model,” said David Goeckeler, Western Digital CEO. “Looking ahead, we are optimistic about the business outlook for calendar year 2022. We believe the secular demand for storage and our new product ramps in HDD and flash will drive growth across our end markets.”

Q3 2022 Financial Highlights

GAAP

Non-GAAP

Q3 2022

Q2 2022

Q/Q

Q3 2022

Q2 2022

Q/Q

Revenue ($M)

$4,381

$4,833

down 9%

$4,381

$4,833

down 9%

Gross Margin

27.0%

32.8%

down 5.8 ppt

31.7%

33.6%

down 1.9 ppt

Operating Expenses ($M)

$857

$856

$740

$741

Operating Income ($M)

$324

$727

down 55%

$650

$882

down 26%

Net Income ($M)

$25

$564

down 96%

$521

$724

down 28%

Earnings Per Share

$0.08

$1.79

down 96%

$1.65

$2.30

down 28%

GAAP

Non-GAAP

Q3 2022

Q3 2021

Y/Y

Q3 2022

Q3 2021

Y/Y

Revenue ($M)

$4,381

$4,137

up 6%

$4,381

$4,137

up 6%

Gross Margin

27.0%

26.4%

up 0.6 ppt

31.7%

27.7%

up 4.0 ppt

Operating Expenses ($M)

$857

$774

up 11%

$740

$732

up 1%

Operating Income ($M)

$324

$317

up 2%

$650

$412

up 58%

Net Income ($M)

$25

$197

down 87%

$521

$318

up 64%

Earnings Per Share

$0.08

$0.63

down 87%

$1.65

$1.02

up 62%

The company generated $398 million in cash flow from operations, made a discretionary debt repayment of $150 million and ended the quarter with $2.51 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)

Q3 2022

Q2 2022

Q/Q

Q3 2021

Y/Y

Cloud

$ 1,774

$ 1,920

down 8%

$ 1,423

up 25%

Client

1,732

1,854

down 7%

1,767

down 2%

Consumer

875

1,059

down 17%

947

down 8%

Total Revenue

$4,381

$4,833

down 9%

$4,137

up 6%

Cloud represented 40% of total revenue. Western Digital’s leadership position at the 18-terabyte capacity point, and ramp of 20-terabyte drives, drove a nearly 40% year-over-year increase in nearline revenue. This growth was partially offset by lower enterprise SSD and smart video hard drive revenues.

Client accounted for 40% of total revenue. Within client SSD, demand from PC OEM customers improved as they worked through their own supply chain issues. The sequential decrease in revenue was primarily due to typical seasonality in both flash for mobile and client hard drives.

Consumer represented 20% of total revenue. On a sequential basis, the decline was led by lower retail flash shipments. Western Digital drove 35% year-over-year growth in average capacity per unit in consumer flash, building on the broad consumer recognition of the strength and the value of its brands, including WD_BLACK, SanDisk and SanDisk Professional.

Business Outlook for Fiscal Fourth Quarter of 2022

Three Months Ending

July 1, 2022

GAAP(1)

Non-GAAP(1)

Revenue ($B)

$4.50 – $4.70

$4.50 – $4.70

Gross margin

30.0% – 32.0%

31.0% – 33.0%

Operating expenses ($M)

$880 – $900

$770 – $790

Interest and other expense, net ($M)

~$80

~$70

Tax rate

N/A

~11%(2)

Diluted earnings per share

N/A

$1.60 – $1.90

Diluted shares outstanding (in millions)

~317

~317

(1) Non-GAAP gross margin guidance excludes contamination related charges and stock-based compensation expense, totaling approximately $25 million to $35 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. The company’s Non-GAAP interest and other expense guidance excludes approximately $10 million of non-cash economic interest and other. In the aggregate, Non-GAAP diluted earnings per share guidance excludes these items totaling $135 million to $165 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 2022 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 both 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 the fiscal fourth quarter of 2022 and remaining calendar year 2022; expectations for demand trends, product ramps and market conditions; and expectations regarding our product portfolio and momentum. 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 third quarter ended April 1, 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: 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 substantial 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 27, 2021, 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)

April 1,
2022

July 2,
2021

ASSETS

Current assets:

Cash and cash equivalents

$

2,505

$

3,370

Accounts receivable, net

2,353

2,257

Inventories

3,661

3,616

Other current assets

659

514

Total current assets

9,178

9,757

Property, plant and equipment, net

3,488

3,188

Notes receivable and investments in Flash Ventures

1,417

1,586

Goodwill

10,061

10,066

Other intangible assets, net

252

442

Other non-current assets

1,303

1,093

Total assets

$

25,699

$

26,132

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

1,836

$

1,934

Accounts payable to related parties

396

398

Accrued expenses

1,605

1,653

Accrued compensation

485

634

Current portion of long-term debt

75

251

Total current liabilities

4,397

4,870

Long-term debt

7,087

8,474

Other liabilities

2,231

2,067

Total liabilities

13,715

15,411

Total shareholders’ equity

11,984

10,721

Total liabilities and shareholders’ equity

$

25,699

$

26,132

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 1,
2022

April 2,
2021

April 1,
2022

April 2,
2021

Revenue, net

$

4,381

$

4,137

$

14,265

$

12,002

Cost of revenue

3,200

3,046

9,836

9,047

Gross profit

1,181

1,091

4,429

2,955

Operating expenses:

Research and development

572

555

1,725

1,645

Selling, general and administrative

281

287

851

808

Employee termination, asset impairment and other charges

4

(68

)

24

(43

)

Total operating expenses

857

774

2,600

2,410

Operating income

324

317

1,829

545

Interest and other expense, net

(62

)

(68

)

(217

)

(214

)

Income before taxes

262

249

1,612

331

Income tax expense

237

52

413

132

Net income

$

25

$

197

$

1,199

$

199

Income per common share

Basic

$

0.08

$

0.64

$

3.84

$

0.65

Diluted

$

0.08

$

0.63

$

3.79

$

0.65

Weighted average shares outstanding:

Basic

313

306

312

305

Diluted

316

313

316

308

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 1,
2022

April 2,
2021

April 1,
2022

April 2,
2021

Operating Activities

Net income

$

25

$

197

$

1,199

$

199

Adjustments to reconcile net income to net cash provided by operations:

Depreciation and amortization

216

251

708

961

Stock-based compensation

86

83

249

239

Deferred income taxes

3

(36

)

41

(41

)

Gain on disposal of assets

(15

)

(66

)

(14

)

(65

)

Amortization of debt issuance costs and discounts

13

10

34

30

Other non-cash operating activities, net

29

(8

)

42

(26

)

Changes in:

Accounts receivable, net

390

(72

)

(96

)

474

Inventories

(15

)

(108

)

(45

)

(613

)

Accounts payable

(196

)

(209

)

(100

)

(139

)

Accounts payable to related parties

7

3

(2

)

(10

)

Accrued expenses

(95

)

173

(48

)

251

Accrued compensation

(83

)

(29

)

(149

)

22

Other assets and liabilities, net

33

(73

)

(234

)

(378

)

Net cash provided by operating activities

398

116

1,585

904

Investing Activities

Purchases of property, plant and equipment, net

(290

)

(162

)

(829

)

(699

)

Activity related to Flash Ventures, net

40

35

23

129

Strategic Investments and other, net

(3

)

1

(16

)

8

Net cash used in investing activities

(253

)

(126

)

(822

)

(562

)

Financing Activities

Employee stock plans, net

(3

)

(23

)

20

Repayment of debt

(3,150

)

(212

)

(5,575

)

(673

)

Proceeds from debt

3,000

3,998

Debt issuance costs

(14

)

(23

)

Other

(9

)

Net cash used in financing activities

(167

)

(212

)

(1,623

)

(662

)

Effect of exchange rate changes on cash

(4

)

(5

)

6

Net decrease in cash and cash equivalents

(26

)

(222

)

(865

)

(314

)

Cash and cash equivalents, beginning of period

2,531

2,956

3,370

3,048

Cash and cash equivalents, end of period

$

2,505

$

2,734

$

2,505

$

2,734

WESTERN DIGITAL CORPORATION

Supplemental Operating Segment Results

(in millions; except percentages; unaudited)

Three Months Ended

Nine Months Ended

April 1,
2022

April 2,
2021

April 1,
2022

April 2,
2021

Net revenue:

Flash

$

2,243

$

2,175

$

7,353

$

6,287

HDD

2,138

1,962

6,912

5,715

Total net revenue

$

4,381

$

4,137

https://finance.yahoo.com/news/western-digital-reports-fiscal-third-200500653.html

Next Post

UK banks need pushing to recover Covid business loans, say MPs

MPs have urged ministers to use legal, regulatory and contractual means to ensure banks do their utmost to minimise taxpayer losses under one of the government’s flagship Covid-19 loan schemes for small companies. In a report published on Wednesday, the House of Commons public accounts committee also accused the Department […]