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How Does Western Digital View Fiscal 4Q16?

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Revenues and operating expenses

In fiscal 4Q16, Western Digital (WDC) expects revenues in the range of $2.6 billion–$2.7 billion. The firm expects its gross margin percentage to improve compared to fiscal 3Q16. It also expects operating expenses of $475 million in 4Q16.

Excluding the impact due to the interest expense from debt financing related to the SanDisk acquisition, we estimate non-GAAP (generally accepted accounting principles) earnings per share (or EPS) between $1.00–$1.10.

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Cost savings

Western Digital (WDC) expects to achieve total savings of $800 million on an annualized run-rate basis by the end of 2017 compared to the earlier estimated savings of $650 million. Savings from operating expenses is expected to be $450 million. Savings of approximately $300 million should occur by the end of 2016, and the balance of $150 million is expected by the end of 2017.

For the cost of goods sold, WDC expects to achieve savings of $350 million on an annualized run-rate basis, of which 50% should occur by the end of 2016 and the balance by the end of 2017, compared to the firm’s earlier estimate of $250 million.

Western Digital and peer companies such as NetApp (NTAP), SanDisk (SNDK), and Seagate (STX) account for 1.2% of the Technology Select Sector SPDR ETF (XLK).

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