Western Digital Corp. (WDC) reported fiscal first quarter 2011 earnings of 84 cents per share beating Zacks Consensus Estimates of 81 cents per share. Earnings decreased 32.8% year-over-year and 32.3% sequentially, though revenue and hard-drive unit shipments increased from prior year quarter.
The company’s low-cost business model helped it weather the intense competition in the hard disk manufacturing space and within its distribution channel.These pressures were more than evident in the company’s softer gross margins.
Hard drive unit shipments increased 15% to 50.7 million year-over-year. Revenue increased 9.1% to $2.4 billion compared to same quarter last year and is in line with Zacks Consensus revenue estimates.
Gross profit decreased 15% to $437 million and operating profit decreased 33.9% to $211 million, compared on a year over year basis. Gross profit margin decreased 5.1 percentage points and operating profit decreased 5.6 percentage points from same quarter last year.
Though revenue increased in the reported quarter the cost of revenue increased 15.6% to $1.9 billion thereby reducing the gross profit when compared on year-over-year basis.
Net profit decreased 31.6% to $197 million and net profit margin decreased 4.2 percentage points compared to same quarter last year.
Management expects to continue its focus on quality, reliability, and profitable growth and is looking to utilize the opportunities generated by the growth in consumer and official workplace.
Estimates for the quarter had been declining in the run-up to the earnings release, with 6 analysts reducing estimates in the last 30 days and none raising estimates. The full-year estimate for next year has been trending down in recent days, with five negative revisions in the last thirty days. The current Zacks Consensus Estimate for 2012 of $4.11 is down from $4.30 thirty days ago. The full-year Zacks Consensus Estimate for 2011 also declined to $3.56 from $3.71 thirty days ago.
This negative earnings momentum is reflected the Zacks #4 rank for Western Digital, which translates into a Sell rating on a short term basis. For long term, we have a Neutral recommendation.
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