Western Digital Reports Fiscal Third Quarter 2020 Financial Results

SAN JOSE, CA - April 30, 2020

Western Digital Corp. (Nasdaq: WDC) today reported fiscal third quarter 2020 financial results.

"I joined Western Digital a little over a month ago because I have strong conviction in the digital transformation that is reshaping every industry, every company and how all of us live our daily lives," said David Goeckeler, Western Digital CEO. "While I couldn't have anticipated the unprecedented series of events that have transpired, I'm very proud of how the company has responded to an extremely dynamic environment with dedicated focus both on our employees' safety as well as delivering our market leading technology to our customers. As the only company in the world to provide a broad array of NAND flash, Solid State Drives (SSD) and Hard Disk Drives (HDD) solutions, I'm confident our innovation will drive significant new value for customers around the world."

Q3 2020 Financial Highlights

 

GAAP

Non-GAAP

 

Q3 2020

Q3 2019

vs. Q3 2019

Q3 2020

Q3 2019

vs. Q3 2019

 

($ in millions, except per share amounts)

Revenue

$4,175

$3,674

up 14%

$4,175

$3,674

up 14%

Gross Margin

24.1%

15.8%

up 8.3 pts

27.9%

25.3%

up 2.6 pts

Operating Expenses

$852

$973

down 12%

$738

$742

down 1%

Operating Income (Loss)

$153

($394)

*

$427

$186

up 130%

Net Income (Loss)

$17

($581)

*

$257

$49

up 424%

Earnings Per Share

$0.06

($1.99)

*

$0.85

$0.17

up 400%

*not a meaningful figure

We generated $142 million in cash from operations during the fiscal third quarter of 2020 and ended the quarter with $2.9 billion of total cash and cash equivalents. We returned $149 million to shareholders through dividends and used $212 million to reduce debt. On February 13, 2020, we declared a cash dividend of $0.50 per share of common stock, which was paid to shareholders on April 17, 2020. Going forward, we are suspending our dividend to strengthen our reinvestment in growth and innovation and to support our ongoing deleveraging efforts. We will reevaluate our dividend policy as leverage ratios improve.

Key End Market Summary


Revenue ($ in millions)

Q3 2020

Q3 2019

vs. Q3 2019

Client Devices

$1,831

$1,625

up 13%

Data Center Devices & Solutions

1,523

1,245

up 22%

Client Solutions

821

804

up 2%

Total Revenue

$4,175

$3,674

up 14%

We are leading the industry in bringing next generation energy-assisted drives to market, as we recognized revenue for our 16- and 18-terabyte drives during the quarter. Customer interest in these products, specifically our 18-terabyte drive, is very high, and the ramp is on schedule.

Customer acceptance of our enterprise SSDs continued to grow. Our latest 96-layer NVMeTM based SSDs have completed more than 20 qualifications, with well over 100 qualifications in progress at multiple Cloud and Original Equipment Manufacturer customers worldwide.

Demand for our notebook solutions was greater than expected due to the shift to working from home and e-learning. We experienced record client SSD revenue during the quarter and expect continued growth in the fiscal fourth quarter.

Desktop hard drive revenue was down due to normal seasonality and the shift towards notebook solutions. In addition, smart video hard drive demand was softer than expected as a result of COVID-19.

Mobile flash bit shipments remained modest in the quarter as we strategically managed our exposure to this part of the market.

Retail was particularly affected by COVID-19, in a typically seasonally weaker quarter. As we approached the end of the quarter, we experienced a decline in demand from traditional brick and mortar retailers as they started to temporarily close their stores. While many retailers shifted to curbside pickup and began pushing sales through their online channels, we expect physical store closures will create a headwind in our fiscal fourth quarter.

Business Outlook for Fourth Fiscal Quarter of 2020

Three Months Ending
July 3, 2020

 

GAAP(1)

Non-GAAP(1)

Revenue ($ in billions)

$4.25 - $4.45

$4.25 - $4.45

Gross margin

~ 25% - 27%

~ 29% - 31%

Operating expenses ($ in millions)

$850 - $870

$740 - $760

Interest and other expense, net ($ in millions)

$85 - $90

$75 - $80

Tax rate

N/A

~ 24% - 25% (2)

Diluted earnings per share

N/A

$1.00 - $1.40

Diluted shares outstanding (in millions)

~ 302

~ 302

(1) Non-GAAP gross margin guidance excludes amortization of acquired intangible assets, stock-based compensation expense, and charges related to cost saving initiatives totaling approximately $150 million to $170 million. The company's non-GAAP operating expenses guidance excludes amortization of acquired intangible assets; stock-based compensation expense; employee termination, asset impairment and other charges; and charges related to cost saving initiatives totaling approximately $100 million to $120 million. The company's non-GAAP interest and other expense guidance excludes approximately $10 million of convertible debt activity. In the aggregate, non-GAAP diluted earnings per share guidance excludes these items totaling $260 million to $300 million. The timing and amount of these charges excluded from non-GAAP gross margin, non-GAAP operating expenses, non-GAAP interest and other expense, net and non-GAAP diluted earnings per share cannot be further allocated or quantified with certainty. Additionally, the timing and amount of additional charges the company excludes from its non-GAAP tax rate and non-GAAP diluted earnings per share are dependent on the timing and determination of certain actions and cannot be reasonably predicted. Accordingly, full reconciliations of non-GAAP gross margin, non-GAAP operating expenses, non-GAAP interest and other expense, non-GAAP tax rate and non-GAAP diluted earnings per share to the most directly comparable GAAP financial measures (gross margin, operating expenses, interest and other expense, tax rate and diluted earnings per share, respectively) are not available without unreasonable effort.

(2) The non-GAAP tax rates provided are based on a percentage of non-GAAP pre-tax income.

Investor Communications

The investment community conference call to discuss these results and the company's business outlook for the fiscal fourth quarter of 2020 will be