Can Western Digital Deliver Big Gains?

Western Digital (WDC) announced third quarter ended April 01, 2016 net revenue of $2.8 billion, down 20 percent year-over-year from $3.5 billion of total revenue during the same period last year. Going forward, the company has updated its fourth quarter revenue guidance to be in the range of $3.35 billion to $3.45 billion as against its previous estimate in the range of $2.6 billion to $2.7 billion.

Facing weakness

Western Digital declared third quarter of 2016 adjusted net income of $283 million, or $1.21 per share, down 36 percent year-over-year from adjusted net income of $441 million, or $1.87 per share in third quarter of 2015.
Moving ahead, the company expects fourth quarter of 2016 non-GAAP earnings per share to be in the range of $0.65 to $0.70 as against its previous estimate in range of $1.00 to $1.10 per share.

The global HDD manufacturer reported continued year-over-year decline in both its top and bottom lines primarily driven by the strategic and successful SanDisk acquisition performed during the quarter.

Western Digital is believed to be an industry-leader in advanced storage solutions with over 6000 strategic patents globally. The company is expected to be having a solid 10 years of consistent and continued profitable expansion, with revenue and earnings per share increasing at a CAGR of 19% and 34% respectively.

Moving ahead, the HDDs are believed to be at the center of advanced company innovation since network storage and isolated PC requirements in the early 1980s being catered by desktop PCs, the SANs and IP network requirements emerged in early 2000 that were fulfilled by the development of notebook PCs, DVRs and external HDDs and finally, the cloud computing emerged in early 2010 increasingly driving light and thin mobility tablets along with advanced gaming and digital AV equipped home networks.

Making the right moves

The international HDD maker is consistently growing and changing in accordance with the rapidly evolving data storage needs worldwide from just home requirements earlier to notable data center needs currently including, personal, public and private data center requirements. The customer priorities have also evolved significantly from smallest storage device weight to the greatest priority on availability of the highest storage spaces.

Mobility and speed is driving flash and SSD expansion, rapid transition towards light and thin mobile devices creates notable growth opportunity for innovative hybrids and lean form factors. The impressive growth in web apps and mobility is driving significant cloud storage requirements for both, personal and data center. Further, more than 85% of key Exabyte during 2020 are believed to be preserved on HDDs.

The extraordinarily fast changing global data storage requirements is expected to be successfully met by Western Digital through superior innovation delivering capabilities achieved by strategically maintained healthy financial position to support attractive prospective growth while offering impressive shareholder returns.

The global storage trends from 2012 till 2020 depicts smart or feature phones to be the leading storage devices ahead of client PC, personal CE, cloud or tablets. In addition, HDDs are expected to be the core storage solution in these devices that are believed to continuously adjust in accordance with the rapidly changing storage ecosystem.

Conclusion

Overall, the investors are advised to “Hold” their position in Western Digital Corporation considering the company’s significant long-term growth prospects driven by notable product innovations being delivered by the company and further, supported by a robust financial position with solid total cash position of $6.03 billion against smaller total debt position of $2.20 billion only, encouraging the company to make future growth investments while delivering attractive shareholder returns. The profit margin of 6.53% seems satisfactory. However, the PEG ratio of -10.79 appears misguiding and indicate no growth but decline.
Published on Jul 29, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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