Western Digital (WDC) Outlook 'Uglier Than Expected'

Western Digital (NASDAQ: WDC) shares hit a low of $45.04 on Friday after the company posted fiscal fourth-quarter earnings missing revenue expectations.

The computer hard disk drive manufacturer reported earnings of $1.78 per share, $0.04 better than the analyst estimate of $1.74. However, revenue for the quarter came in at $4.53 billion versus the consensus estimate of $4.58 billion.

Overall, revenue declined 8% year-over-year. Cloud revenue increased 5%, client revenue declined 14%, and consumer revenue declined 23% year-over-year.

"I am proud of our team for driving strong fiscal year 2022 performance, during which revenue grew 11% and non-GAAP EPS increased 81%, demonstrating progress in unlocking the earnings potential of our business," said David Goeckeler, Western Digital CEO.

While the company missed revenue estimates, it was its guidance that disappointed investors, with fiscal first quarter 2023 EPS expected to be between $0.35 and $0.65, versus the consensus of $1.96. In addition, Western Digital sees revenue for the period between $3.6 Billion and $3.8 billion, versus the consensus of $4.74 billion

Following the announcement, Rosenblatt Securities analyst Kevin Cassidy maintained a Neutral rating on the stock but lowered the firm's price target to $45 from $60 per share.

"Following an in-line June quarter, management pointed to a sudden drop-off in orders as PC, smartphone and retail customers made plans to reduce inventory. This led to management’s guidance missing consensus estimates by a very wide margin. This is hopefully a steep inventory adjustment and demand can resume in the out quarters. The lingering problem, in our view, will be that once NAND Flash ASPs are brought down much faster than cost reduction, it takes many quarters before gross margins can recover, particularly during an over supplied market. We are modeling a gradual demand recovery though maintaining our Hold rating on the WDC shares," said Cassidy.

Elsewhere, Stifel analyst Patrick Ho, who has a Buy rating on the stock, said the near-term outlook was "uglier than expected."

"On Friday morning, Western Digital (WDC, Buy, $49.91) reported 4Q22 (June) earnings results of $4.53 billion in revenue and pro forma EPS of $1.78, excluding options, slightly below our revenue forecast of $4.6 billion but above our pro forma EPS forecast of $1.74. We believe the results are quite impressive, given the changing market environment that evolved during the quarter. In particular, the company delivered solid gross margins (32.3% pro forma, above our expectation of 31.9%), which helped deliver the modest upside to EPS."

By Sam Boughedda

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