WD: Fiscal 3Q09 Financial Results

(in US$ millions)	3Q08	3Q09	9 mo. 08	9 mo. 09
Revenues	2,111	1,592	6,081	5,524
*Growth*		-25%		*-9%*
Net income (loss)	280	50	654	274

Western Digital Corp. reported revenue of $1.6 billion, on shipments of approximately 31.6 million units and net income of $50 million, or $0.22 per share, for its fiscal third quarter ended Mar. 27, 2009. The company’s results include charges of $14 million for in-process research and development related to the SiliconSystems, Inc. acquisition and $4 million associated with the restructuring plan announced Dec. 17, 2008. Excluding these charges, non-GAAP net income was $68 million or $0.30 per share.(1) In the year-ago quarter, the company reported revenue of $2.1 billion, unit shipments of 34.5 million and net income of $280 million, or $1.23 per share.

The company generated $355 million in cash from operations during the March quarter, ending with total cash and cash equivalents of $1.6 billion.

"We are pleased with our financial performance in the March quarter, reflecting continued profitability and cash generation," said John Coyne, president and chief executive officer of WD. "We managed our market segment participation, product mix and costs to optimize our returns in a challenging environment. We have taken a series of actions to resize and restructure the business to remain profitable and cash flow positive at a $1.5 billion quarterly revenue level and the effects of these actions are already showing up in our results."

Coyne also noted that WD sustained its investments in technology and new products in the March quarter, with growing shipments of the industry’s first 2 terabyte hard drive and of several new products in its branded products portfolio.

The company also broadened its product and market breadth with the recent acquisition of SiliconSystems, a leading maker of solid-state drives, which now comprises WD’s solid-state storage business unit. "SiliconSystems’ intellectual property and technical expertise will accelerate WD’s solid-state drive development programs, providing greater choice for our customers to satisfy all their storage requirements," said Coyne. "Integration into WD is well under way and proceeding according to plan."

Comments

Here are some abstracts of the conference call transcript:

John Coyne, president and CEO:

"Demand for ATA hard drives in the March quarter remain depressed from year ago levels, falling 12% year-over-year and 9% sequentially to 103 million drives, due to the continuing effects of the worldwide economic downturn. This demand was slightly better than the 13% quarterly decline we had expected. WD took a disciplined approach to supply during the March quarter. We reduced production to match drive shipments, which were down by 8% year-over-year and 11% quarter-over-quarter to 31.6 million units. Additionally, we reduced finished goods by one million drives.

"The December quarter demand dropped by 8 million units or 12% quarter-over-quarter to 60 million units.

"Starting in January, we saw a massive inventory squeeze, which took 10 million units out of the market demand in the first two months of the quarter. This reduced demand from 53 million units in the December quarter to 43 million units in the March quarter, a 7% year-on-year and 18% quarter-on-quarter reduction.

"The SSD market, as we understand it in 2008, was about a $1.1 billion dollar market. That in context, our drive business in 2008 was a $35 billion dollar market. The projections that we’re synthesizing from all of the forecasters and from discussions internal and external show about a $5 billion dollar opportunity for SSD, three to four years out, and a $14 billion dollar opportunity for HDD, three to four years out.

"Within that, the $1.1 billion last year, about $400-$450 million of that was in bedded systems, which is in the markets that Silicon Systems addresses with current product line. We believe the balance was a split between enterprise tier-zero type applications and notebook and net book applications.

"We think most of the growth is in the forecasted growth. Most of that is in the enterprise and client computing and net book spaces."

Tim Leyden, Executive VP and CFO:

"Average hard drive selling price was approximately $50, down $2 from the December quarter and $9 from the year-ago quarter.

"Our unit shipments of 2.5-inch drives were 10.1 million in the March quarter as compared to 10.2 in the year ago quarter and 13.8 million in the December quarter. In this market, in particularly in the earlier part of the quarter, we were selective in the business that we chose to pursue. We shipped 3.5 million 3.5 drives for use in digital video recorders in the March quarter as compared to 3.1 in the year-ago quarter and 4.1 million in the December quarter. Revenue from sales of branded products was $343 million as compared to $330 million in the year ago quarter and $403 million in the December quarter.

"Hard drive channel revenue was 48% OEM, 30% distribution and 22% branded products in the March quarter compared with 50%, 34% and 16% in the year ago quarter, and 57%, 21% and 22% in the December quarter respectively.

"The Q3 geographic split of our hard drive revenue was 26% Americas, 28% Europe and 46% Asia as compared to 28%, 31% and 41% in the year ago quarter and 23%, 29% and 48% in the December quarter."