WD: Fiscal 2Q09 Financial Results

(in US$ millions)	2Q08	2Q09	6 mo. 08	6 mo. 09
Revenues	2,204	1,823	3,970	3,933
*Growth*		-17%		*-1%*
Net income (loss)	305	14	374	225

Western Digital Corp. reported revenue of $1.8 billion, on shipments of approximately 35.5 million units and net income of $14 million, or $0.06 per share, for its fiscal second quarter ended Dec. 26, 2008. The company’s results include charges of $113 million associated with the restructuring plan announced on Dec. 17, 2008. Excluding the restructuring charges and the related tax benefit of $4 million, non-GAAP net income was $123 million or $0.55 per share.

In the year-ago quarter, the company reported revenue of $2.2 billion, of which $2.1 billion related to the sale of hard drives. Year-ago unit shipments were 34.2 million and net income was $305 million, or $1.35 per share.

The company shipped 13.8 million 2.5-inch mobile drives and 4.1 million 3.5-inch units for the PVR/DVR market, compared with 8.7 million and 4.1 million units a year ago, respectively. Branded products accounted for 22 percent of hard drive revenue in the December quarter compared with 18 percent in the year-ago quarter.

The company generated $300 million in cash from operations during the December quarter, ending with total cash and cash equivalents of $1.4 billion.

"Against a backdrop of unprecedented global economic turmoil and a rapid intra-quarter fall off in demand for hard drives, WD acted swiftly to align production and operating expenses with significantly lower-than-originally planned unit volumes," said John Coyne, president and chief executive officer. "With a strong balance sheet and competitive cost structure, we plan to continue investing in next-generation product platforms and technologies during this downturn. We are focused on maintaining our leadership in technology deployment, ease-of-use features, and availability of the right products for our diversified customer base. We remain enthused about our long-term prospects as a full-line storage supplier in addressing the demands of both the commercial and consumer markets as the digitization of content continues to grow."

Comments

Comparing the same three-month periods ending in December 2007 and 2008, WD registered a 17% decrease in revenue to be compared with 34% for Seagate. The first one announced a small profit ($14 million), and the second one a big loss ($496 million) for their most recent quarters. But Seagate continues to be by far the leader of the HDD industry in front of WD.

Here are some abstracts of the conference call transcript.

John Coyne, President and CEO:

"Instead of the 138 million units in served market demand which we expected, we saw a decline in industry shipments to 113 million, a negative swing of 25 million hard drives."

Tim Leyden, Executive VP and CFO:

"For the December quarter, we saw sequential declines in desktop, notebook and enterprise data unit shipments. We experienced the first Q1 to Q2 decline in 2.5-inch drive market demand since entering the notebook market in September 2004. Our unit shipments of 2.5-inch drives were 13.8 million in the December quarter as compared to 14.6 in the September quarter and 8.7 million in the year-ago quarter.

"On the plus side, shipments of consumer electronics and branded products were up sequentially. We shipped 4.1 million 3.5-inch drives for use in digital video recorders in the December quarter as compared to 3.9 in the September quarter and 4.1 million in the year-ago quarter. And revenue from sales of branded products increased 5% from Q1 and 10% from the year-ago quarter to $403 million.

"Hard drive channel revenue was 57% OEM, 21% distribution and 22% branded products in the December quarter compared with 56%, 26% and 18% in the September quarter and 48%, 34% and 18% in the year-ago quarter respectively. There was one customer, namely Dell, which comprised more than 10% of total revenue.

"The Q2 geographic split of our hard drive revenue was 23% Americas, 29% Europe and 48% Asia as compared to 23%, 29% and 48% in the September quarter and 32%,32% and 36% in the year-ago quarter. Demand strength in Asia continues to be driven by the concentration of global manufacturing in that region.

"Now I will discuss our expectations for the third quarter of our fiscal year 2009. First, let me outline the market situation as we see it. Historically, the March quarter's sequential unit decline has been in the range of 0 to minus 8%. Global macroeconomic conditions remain challenging and the outlook in our industry and the PC industry narrows that. With demand visibility continuing to be limited, credits continuing to be tight for our customers and inventory rationalization continuing throughout all channels, we envisage that these conditions will continue to render historical demand patterns less meaningful through the rest of this calendar year.

"As a result, we are modeling a quarter-on-quarter sequential market unit reduction of approximately 13%. We believe that in a commodity marketplace such as ours, this balancing of supply and demand continues to be critical, and we are still seeking to find that equilibrium as an industry. So we anticipate that pricing will continue to be competitive."