Western Digital Corp. (WDC) reported fiscal second quarter 2011 earnings of 96 cents per share, comprehensively beating Zacks Consensus Estimate of 58 cents per share. Earnings decreased 48.1% year-over-year but it increased 14.3% sequentially.
Western Digital’s revenue of $2.48 billion also surpassed Zacks Revenue Estimate of $2.35 billion. Management cited that the better-than-expected results reflected on solid execution and improvement in hard drive industry conditions compared with the previous two quarters. However, revenues went down 5.3% when compared with the same quarter of prior year.
Quarter in Detail
Hard drive unit shipments increased 5.5% to 52.2 million year-over-year.
Cost of revenue increased marginally 3.5% to $2.0 billion from the year ago quarter.
Both gross profit and net profit gave a gloomy picture as they decreased 30.9% to $475 million and 47.6% to $225 million, respectively, compared on a year over year basis. Joining the league, operating profit also decreased 49.3% to $240 million on a year over year basis.
However, contradictory to the trend in the last quarter, net profit recorded a sequential increase in the reported quarter. All the three, namely gross profit, net profit and operating profit increased 8.7%, 14.2% and 13.7%, respectively, on a sequential basis.
Management expects to continue its focus on quality, reliability, product availability, low-cost structure and is looking to utilize the opportunities by matching production with true customer demand. Moreover, management believes that there is ample opportunity for profitable growth in the industry and Western Digital remains committed to improve the financial performance over the long-term.
Conclusion
Estimates for the quarter have been stable in the run-up to the earnings release, with 2 analysts raising estimates in the last 30 days and one analyst reducing estimates. The full-year estimate for next year has been trending up in recent days, with two positive revisions in the last thirty days.
The current Zacks Consensus Estimate for 2012 of $3.50 is up from $3.48 thirty days ago. The full-year Zacks Consensus Estimate for 2011 is $2.60 and has remained stable over the last 30 days.
We currently have a Zacks #2 Rank for Western Digital, which translates into a Buy rating on a short term basis.
Western Digital faces intense competition in the hard disk manufacturing space and one of the key competitors is Seagate Technology (STX). Customer concentration is another risk. Hence we maintain our Neutral rating on Western Digital shares on a long-term basis.
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