Western Digital Corp (NASDAQ:WDC) just lobbed another grenade at the semiconductor space. A few minutes after Intel came out and guided up, and we heard the collective sigh of the SMH, WDC got on its call and explained why it dropped this bomb: Q4 guidance non-GAAP EPS of $1.45-1.65 vs CapitalIQ consensus of $3.03; guides to revenue of $4.20-4.40 bln vs consensus of $5.22 bln.
In other words, the company says next quarter won’t be anywhere near as good as expected. Why? It’s very simple: the memory market. In this case, we are talking about flash memory: “Flash pricing hurt results; customers being more conservative; co is taking immediate to reduce production to be more in-line with demand. Results were impacted by flash average selling prices, but co had strong performance in capacity enterprise, surveillance hard drives and embedded flash solutions.”
Western Digital Corp (NASDAQ:WDC) management went on to note that its customers had become more conservative, resulting in softening demand. This in conjunction with more flash supply in the market, which is pressuring selling prices.
From the call, we heard a number of other mission-critical points:
Co is making an immediate reduction of wafer starts and co is delaying deployment of capital equipment installs in order to better match demand and supply.
Co is taking aggressive actions to align supply of flash to match demand. Reducing by 10-15% for planned bit output for calendar 2019.
Co is faced with market factors beyond higher flash supply in the market. Co also expects to be hurt by CPU shortage, this could linger into early calendar 2019; co is also seeing a temporary slowdown in data center spending by large cloud service providers after several quarters of strength; co expects stronger growth to resume in 2H19 (calendar).
Revenue was below guidance primarily due to weaker than expected flash pricing. Avg selling price was down 16% sequentially. Gross margin was hurt by a reduction in flash ASPs.
Co continues to believe share buybacks are a wise allocation of capital.
Decision to reduce flash output: reduce by 10-15% for calendar 2019. Goal is to bring supply in line with demand. Majority of reduction will be in place by mid-2019 (calendar).
In a Nutshell
Western Digital Corp (NASDAQ:WDC) trumpets itself as a company that develops, manufactures, and sells data storage devices and solutions worldwide.
It offers client devices, including hard disk drives (HDDs) and solid state drives (SSDs) for computing devices, such as desktop and notebook PCs, security surveillance systems, gaming consoles, and set top boxes; flash-based embedded storage products for mobile phones, tablets, notebook PCs, and other portable and wearable devices, as well as automotive, IoT, industrial, and connected home applications; flash-based memory wafers; and embedded storage solutions and iNAND embedded flash products, such as multi-chip package solutions.
The company also provides data center devices and solutions comprising enterprise helium hard drives; enterprise SSDs consisting of flash-based SSDs and software solutions for use in enterprise servers, online transactions, data analysis, and other enterprise applications; data center solutions, including HDDs and drive configurations for use in data storage systems and tiered storage models; system solutions that offer petabyte scalable capacity; and data storage platforms and systems.
In addition, it offers client solution, such as external HDD storage products in mobile and desktop form; client SSDs; removable cards used in consumer devices comprising mobile phones, tablets, imaging systems, still cameras, action video cameras, and security surveillance systems; universal serial bus flash drives used in the computing and consumer markets; and wireless drive products for in-field back up of created content, as well as wireless streaming of high-definition movies, photos, music and documents to tablets, smartphones, and personal computers (PCs).
The company sells its products under the HGST, SanDisk, and WD brands to original equipment manufacturers, distributors, resellers, cloud infrastructure players, and retailers.