Product, cost, and revenue synergies
Western Digital (WDC) expects to achieve total savings of $800 million on an annualized run-rate basis from its HGST integration by the end of 2017. This amount compares to the company’s earlier estimated savings of $650 million.
WDC’s savings from operating expenses are expected to be $450 million. The company should see savings of ~$300 million by the end of fiscal 2Q17. It expects a balance of $150 million by the end of fiscal 2Q18.
For the cost of goods sold, WDC expects to achieve savings of $350 million on an annualized run-rate basis, compared to its earlier estimate of $250 million. Of this amount, 50% should be achieved by the end of 2016, with the balance being achieved by the end of 2017.
Cost reductions improve EPS for Seagate
For fiscal 1Q17, Seagate (STX) posted GAAP EPS (earnings per share) of $0.55, higher than $0.11 in fiscal 1Q16. On an adjusted basis, its EPS came in at $0.99, handily beating the consensus estimate that called for EPS of $0.89. The improvement in EPS was supported by a 9.3% year-over-year (or YoY) decline in operating expenses to ~$2.6 billion for the latest quarter.
Seagate’s EPS rise was due to the success of its cost-reduction efforts, which have included mass layoffs. Earlier this year, Seagate announced the layoff of more than 14% of its global workforce as it pursues cost-saving measures.
In fiscal 1Q17, Seagate recognized approximately $82 million in pre-tax charges, driven by cost reduction activities. In July this year, the firm announced cost reduction activities of $164 million in pre-tax charges.