Western Digital Stock Falls 5% on Weak Q3 Earnings



Western Digital stock falls 5% in after-hours trading

After making a new high on April 24, the VanEck Vectors Semiconductor ETF (SMH) fell 1.7% between April 25 and 29 as semiconductor stocks reacted to the overall industry’s first-quarter earnings results.

The memory segment was hit the worst by overall demand weakness and falling memory prices. The stocks of Micron (MU), Seagate (STX), and Western Digital (WDC) fell 1.5%, 2.5%, and 4.7%, respectively, between April 25 and 29 as Intel’s (INTC) earnings showed that data center demand weakness would continue in the second quarter.

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The latest earnings release was that of the world’s third-largest NAND (negative-AND) chip maker, Western Digital, which reported its fiscal 2019 third-quarter earnings results. WDC fell 5.1% in the after-hours trading session on April 29 on its weak earnings.

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Western Digital’s earnings highlights

WDC’s fiscal 2019 third-quarter revenue fell 12.6% sequentially to $3.67 billion, missing its own guidance of $3.7 billion at the midpoint. This revenue decline was driven by a 26% sequential fall in its flash revenue as its NAND ASP (average selling price) fell 23% sequentially. Its HDD (hard disk drive) revenue was sequentially flat at $2.06 billion.

Other NAND suppliers Micron and Intel reported 25% and 45% sequential falls in their NAND ASPs, respectively, which reduced their NAND revenues by 18% and 17%, respectively. Such sharp declines in NAND prices saw WDC and Intel write down their inventories of multichip packages at an LCM (lower of cost or market) value. These inventory write-downs affected their operating margins.

WDC’s fiscal 2019 third-quarter non-GAAP (generally accepted accounting principles) operating income fell 68% sequentially to $186 million, or 5% of revenue, as it incurred a $110 million LCM charge. Intel’s operating loss from its memory business widened to $297 million in the quarter from $19 million in the previous quarter.

In the third quarter of fiscal 2019, WDC’s non-GAAP EPS fell 88% sequentially to $0.17, missing analysts’ consensus estimate of $0.46. Lower profits resulted in a negative free cash flow of $110 million.

In the fourth quarter of fiscal 2019, WDC expects its revenue to remain sequentially flat at $3.7 billion and its EPS to improve to $0.2 as demand for flash drives improves.


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