Western Digital (WDC) reported first quarter fiscal 2011 EPS of 84 cents, which exceeded the Zacks Consensus Estimate of 81 cents. Revenues of $2.39 billion also surpassed the Zacks Consensus Estimate of $2.35 billion.

Revenue

First quarter fiscal 2011 revenue of $2.39 billion increased 8.5% from $2.20 million reported in the year-ago quarter. The substantial increase may be attributed to steady demand from existing customers that boosted unit shipments during the quarter. Total revenue also includes $51.0 million of sales from the company’s newly acquired Singapore facility.

Total Hard Disc Drive (HDD) units shipped during the first quarter were 50.7 million, up from 44.1 million in the year-ago quarter and 49.7 million in the previous quarter. However, average hard drive selling prices came in at $46.0 per unit, decreasing $3.0 from the year-ago period and $1.0 from the previous quarter.

Western Digital also shipped 2.319 million Enterprise Units during the first quarter, as against 1.669 million in the year-ago quarter and 2.346 million in the previous quarter.

Revenues from sales of WD TV Media Players, WD Livewire, Network Kits and solid state drive (SSD) totaled approximately $33.0 million, roughly flat with the prior-year quarter and up 22% from the previous quarter.

Revenue by sales channel were as follows — 50% from OEM, 32% from distribution and 18% from branded products, compared with 52%, 31% and 17%, respectively, in the year-ago quarter and 54%, 29% and 17%, respectively, in the previous quarter.

Operating Results

The company’s first quarter gross margin was 18.2%, down from 23.3% in the year-ago  quarter and 22.5% in the previous quarter. The greater-than-expected decline in gross margin may be credited to the softer prices, since both product and segment mix and product costs improved during the quarter. These were largely in line with expectations.

Total research and development (R&D) as well as selling, general and administrative (SG&A) spending stood at $226.0 million, or 9.4% of revenues in the first quarter. This compares with $195.0 million or 8.8% revenues during the year-ago quarter and $242.0 million or 10.2% of revenues in the previous quarter. As a result, operating income came in at $211.0 million or 8.8% of revenues in the first quarter compared to $319.0 million or 14.4% of revenues in the year-ago quarter and $293.0 million or 12.3% of revenues in the previous quarter.

Net income in the recently concluded quarter was $197.0 million, or 84 cents per share, compared to $288.0 million, or $1.25 in the year-ago quarter and $265.0 million, or $1.13 in the previous quarter.

Cash Position

The company generated $390.0 million of cash from operations in the quarter, up from $363.0 million in the previous quarter. Cash and cash equivalents were $2.85 billion, up from $2.73 billion reported in the previous quarter. Capital expenditures were $200.0 million, while depreciation and amortization totaled $150.0 million. The company’s total debt position at the end of the quarter was $375.0 million, down from $400.0 million in the previous quarter.

Guidance

For the second quarter of fiscal 2011, the company expects revenues in the range of $2.3 billion to $2.4 billion, total R&D and SG&A expense of approximately $230.0 million and earnings per share of 50 to 60 cents.

Western Digital first quarter 2011 results exceeded our expectations although net profit declined on year-over-year and sequential bases. The company is taking measures to increase its business in Asia and enhance its product portfolio. Western Digitalhas high cash generation ability. However, while we are encouraged by the company’s recent performance, intense competition that it faces in the hard disk manufacturing space and within its distribution channel remains a concern.

 
WESTERN DIGITAL (WDC): Free Stock Analysis Report
 
Zacks Investment Research