Earnings Scorecard: Western Digital – Analyst Blog

Since Western Digital Corp. (WDC) reported its fourth quarter results, there have been a limited number of estimate revisions by the analysts covering the stock.

 

 

Western Digital’s earnings per share (EPS) of $1.24 for the quarter were below the Zacks Consensus Estimate of $1.37. The company generated revenues of $2.4 billion, up 24.3% from $1.9 million reported in the year-ago quarter. The substantial jump in revenue was a result of stronger demand from existing customers, which enabled the company to generate unit shipment growth.

 

The original equipment manufacturer (OEM) channel brought in most of the revenues (54%), followed by 29% from distribution and 17% from branded products.

 

The strength in units was partially offset by the average hard drive selling price, which came in at $47.0 per unit, decreasing $1.0 from the year-ago period and $4.0 from the previous quarter.

 

The company also shipped 19.9 million mobile drives during the quarter, while a solid consumer demand for mobile products in the U.S. and India was rationalized to a certain extent by a drop in demand in commercial and other emerging markets.

 

 

Western Digital expects first quarter fiscal 2011 demand to increase 10.0% to 13.0%, revenues to range between $2.350 billion and $2.450 billion, total research and development as well as selling, general and administrative expense of approximately $235 million, and earnings per share of 80 to 90 cents.

 

Over the last 30 days, 4 of the 22 analysts covering the stock reduced their estimates for the first quarter, with no analyst making an upward revision. Analysts were also negatively biased for fiscal 2011, with 5 of the 23 analysts reducing estimates and no analyst moving in the opposite direction.

 

Some analysts believe that upside is expected to be limited in the Personal Computer segment, while the company believes that competitive production decisions and pricing strategies will pressure margins going forward.

 

Western Digital faces tough competition in the hard drive market. Some of the largest competitors include Fujitsu Limited, Hitachi Global Storage Technologies, and Samsung Electronics Co. Ltd. A limited number of major customers is also affecting the bargaining power of the company and putting pressure on margins. The easy availability of substitutes is an additional challenge.

 

 

The first quarter fiscal 2011 Zacks Consensus Estimate for EPS has moved down to 84 cents, almost 4 cents below the EPS estimated 30 days ago. For fiscal 2011, the Zacks Consensus Estimate has moved to $3.94, down 22 cents from the EPS estimated 30 days ago.

 

 

Western Digital has reported decent fourth quarter and fiscal 2010 results and has provided a reasonable first quarter fiscal 2011 guidance. The company is taking measures to increase its business in Asia and enhance its product portfolio. Western Digital has high cash generation ability. However, while we are encouraged by its recent performance, we are a bit concerned about the intense competition that the company faces in the hard disk manufacturing space and within its distribution channel.

 

We have a Neutral rating on Western Digital for the long term, although the short-term recommendation is Sell, as implied by the Zacks #4 Rank.