Monday, January 17, 2011

Western Digital Corp. (NYSE: WDC): Q2 Earnings Preview 2011

Western Digital Corp. (NYSE: WDC) is scheduled to release its fiscal second-quarter financial results after the closing bell on Tuesday, January 18, 2010. Analysts, on average, expect the company to report earnings of 59 cents per share on revenue of $2.36 billion. In the year ago quarter, the company reported earnings of $1.85 per share on revenue of $2.62 billion.

Western Digital Corporation primarily engages in the design, development, manufacture, and sale of hard drives worldwide. It sells its products worldwide to original equipment manufacturers (OEMs) and original design manufacturers (ODMs) for use in computer systems, subsystems or consumer electronics (CE) devices, and to distributors, resellers and retailers.

In the preceding fiscal first quarter, the Irvine, California-based company's net income was $197 million, or 84 cents a share, compared to $288 million, or $1.25 a share, in the year-ago quarter. Revenue climbed to $2.4 billion from $2.2 billion. Analysts, on average, expected the company to report earnings of 81 cents per share on revenue of $2.35 billion.

At its last earnings call in October, the company said that it expects fiscal second quarter earnings per share in the range of $0.50 and $0.60 and revenue in the range from $2.3 billion to $2.4 billion. R&D and SG&A spending is expected to total approximately $230 million. The company expects average seeling price to decline by approximately 5% from previous quarter.

The company has expanded its full year gross margins from 11% in 2001 to 24% in 2010. This was accomplished primarily through successful vertical integration, expansion of its product breath and execution of its low cost model. 

The company has benefited from continuing growth of traditional PC platforms, the growth of cloud computing, tablet computing and the proliferation of smartphones. The company is taking measures to increase its business in Asia and enhance its product portfolio. Western Digital also has high cash generation ability. 

However, Western Digital faces intense competition in the hard drive market. Some of the largest competitors include Fujitsu Limited, Hitachi Global Storage Technologies, Seagate Technologies (NASDAQ: STX) and Samsung Electronics Co. Ltd. A limited number of major customers is also affecting the bargaining power of the company and putting pressure on margins. The easy availability of substitutes is an additional challenge.

In terms of stock performance, WDC shares have lost nearly 28% over the past year.

Full Disclosure: None.
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