WD: Fiscal 4Q10 Financial Results

(in US$ millions)	4Q09	4Q10	FY09	FY10
Revenues	1,928	2,382	7,453	9,852
*Growth*		24%		32%
Net income (loss)	196	365	470	1,382

Western Digital Corp. reported financial results for its fiscal year 2010 and fourth quarter ended July 2, 2010.

For the quarter, revenue totaled $2.4 billion, hard drive unit shipments were 49.7 million and net income was $265 million, or $1.13 per share.

The quarterly results included $27 million of expense related to litigation settlements. In the year-ago quarter, the company posted revenue of $1.9 billion, shipped 40.0 million hard drives, and reported net income and earnings per share of $196 million and $0.86, respectively. This included $5 million of income from the resolution of restructuring accruals and an $18 million gain on the sale of the company’s substrate manufacturing facility in Sarawak, Malaysia.

The company generated $363 million in cash from operations during the June quarter, ending with total cash and cash equivalents of $2.7 billion. As previously announced, the company completed the acquisition of the magnetic media sputtering operations of Hoya Corporation during the June quarter for $233 million in cash.

For fiscal year 2010, the company posted revenue of $9.8 billion and net income of $1.4 billion, or $5.93 per share, compared to revenue of $7.5 billion and net income of $470 million, or $2.08 per share, for the prior year. The 2010 net income included the $27 million of expense in the fiscal fourth quarter related to litigation settlements. The 2009 net income included a $14 million in-process research and development charge related to the acquisition of SiliconSystems, Inc., $112 million of restructuring charges with related tax benefits of $4 million, and an $18 million gain on the sale of the company’s substrate manufacturing facility.

In fiscal year 2010, WD grew revenue 32 percent and increased its operating income by 194 percent year-on-year.

“Despite softer than anticipated June quarter demand, fiscal year 2010 was another year of significant growth and profitability for Western Digital,” said John Coyne, president and chief executive officer. “The long-term demand for low-cost, high-volume storage driven by the proliferation of data and content-hungry consumer and commercial devices remains strong. With our focus on customer needs, quality, low cost, and high asset efficiency in the highest growth markets, we believe WD is well positioned to continue to generate growth on a sustained and profitable basis.”

Comments

It's always a pleasant game to compare the two biggest HDD competitors.

Both companies encountered softer quarter than anticipated.

WD shipped 49.7 million units compared to 51.1 million the preceding quarter and 40.0 million for the same period one year ago. Since six months, it surpasses Seagate that records 46.8 million for the last three-month period.

But in term of total revenues, the positions remain the same: Seagate number one with $2.7 billion and WD number two with $2.4 billion.

The challenger fells short of surpassing the $10 billion mark in revenues for the year, a figure already surpassed by Seagate during its last fiscal year, 11.4 billion.

But WD continues to be more profitable than Seagate with the percentage of net income compared to revenues in this last quarter being 15% for the first one and 14% for the second one.

For its last fiscal ending six month before the fiscal period of WD, Seagate shipped 193.2 million HDDs. The other one just finished its year with 194 million units.

The race is going on.

Abstracts of the earnings call transcript:

John Coyne, president and CEO:
"Our assessment in late April of a June quarter time in the range of 157 million to 162 million proved overly optimistic. Actual demand for hard drives in the quarter was about 156 million units, down 4% sequentially but up 16% from the year ago period. The major factors leading to the lower time were weakness in Europe, destocking by OEM customers and a shift in OEM ordering patterns to take advantage of lower cost sea versus air freight. In hindsight, this expanded the March quarter at the expense of the June quarter.
"Chip inventory increased from seven to 10 days, while component distribution inventories increased slightly but remained at the midpoint of the normal four to six-week range including in transit."

Timothy Leyden, CFO:
"OEM restocking during Q3 reduced market size in Q4. In European credit crisis led to some purchasing pause by retailers for a number of weeks due to the euro-exchange fluctuation, and there was relative weakness in the consumer space.
"For our full fiscal year 2010, total revenue was $9.8 billion. Hard drive shipments were 194 million units and ASP was $50. Revenue from non-hard drive sales totaled approximately $154 million. The corresponding numbers for fiscal 2009 were total revenue of $7.5 billion, shipments of 146 million units and ASP of $51. Revenue from non-hard drive sales totaled approximately $62 million [for 4Q10. Ed.].
"Revenue from sales of WD TV and Media Players and solid-state drives totaled approximately $27 million, up 20% from the prior year and down 41% versus the March quarter.
"Average hard drive selling price was approximately $47 per unit, down $1 from the year-ago quarter and down $4 from the March quarter.
"We shipped 19.9 million mobile drives in the June quarter, compared to 16.9 million in the year-ago quarter and 19.8 million in the March quarter, reflecting unit consumer demand in the U.S. and India, offset by commercial and emerging market growth. During the June quarter, we shipped 5.3 million drives into the DVR market, compared to 3.7 million in the year-ago quarter and 4.6 million in the March quarter. The strength in this market in the June quarter was in line with historical-seasonal patterns. Revenue from sales of our Branded Products including WD TV was $400 million, up 26% from $318 million in the year-ago quarter, and down 14% sequentially from $467 million in the March quarter reflecting the typical seasonality of the retail market. In addition to normal seasonality, the decline in the value of the euro impacted selling in Europe for a number of weeks.
"Revenue by channel was 54% OEM, 29% distribution and 17% Branded Products in the June quarter."