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WDC and STX Are Still Reducing Costs, Improving Profit Margins

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Apr. 12 2017, Updated 8:07 a.m. ET

WDC expects cost savings of $800 million from HGST integration

Hardware technology (QQQ) company Western Digital (WDC) expects to achieve $800 million in savings on an annualized run-rate basis from its integration of HGST by the end of 2017, compared to its earlier estimated figure of $650 million.

Driven by product pricing and cost improvements from integration, WDC’s non-GAAP (generally accepted accounting principles) gross margin expanded 280 basis points to 36.7% in fiscal 2Q17. Its operating expenses fell $66.0 million quarter-over-quarter to $797.0 million in the same quarter. 

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Mark Long, CFO (chief financial officer) of WDC, said, “We continue to make progress towards our integration synergy target, while making ongoing investments in product development, go-to-market capabilities, and IT [information technology] projects as part of our transformation to enable future growth.”

Seagate’s fiscal 2Q17 gross margin improvement

Seagate’s (STX) gross margin has been constantly improving, from 24.8% in fiscal 2Q16 to 28.6% in fiscal 1Q17 and 30.8% in fiscal 2Q17. Storage companies are continuously looking to improve their profit margins to offset falling sales in a difficult macroeconomic environment. While Seagate’s fiscal 2Q17 revenue fell 3% YoY, its non-GAAP EPS (earnings per share) rose 68% YoY.

Seagate stated that its cost-reduction activities increased its profits by over $500 million YoY in 2016. While Seagate reduced its manufacturing costs by $200 million in 2016, its operating expenses fell $300 million. The company now expects a stable macroeconomic environment to impact its revenue positively. It expects its gross margin to be between 27% and 32% and its operating margin to be between 13% and 15% in fiscal 2017.

Seagate’s gross margin improved from 24.8% in fiscal 2Q16 and 28.6% in fiscal 1Q17 to 30.8% in fiscal 2Q17. In fiscal 2Q17, Seagate’s non-GAAP operating expenses were $458 million.

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