Western Digital (NASDAQ:WDC) Slightly Misses Q1 Expectations And Stock Drops 10.2%

Kayode Omotosho /
2021/10/28 6:46 pm EDT

Leading data storage manufacturer Western Digital (NASDAQ: WDC) slightly missed analyst expectations in Q1 FY2022 quarter, with revenue up 28.7% year on year to $5.05 billion. Guidance for the next quarter also missed analyst expectations with revenues guided to $4.8 billion, or 8.37% below analyst estimates. Western Digital made a GAAP profit of $610 million, improving on its loss of $60 million, in the same quarter last year.

Is now the time to buy Western Digital? Access our full analysis of the earnings results here, it's free.

Western Digital (WDC) Q1 FY2022 Highlights:

  • Revenue: $5.051 billion vs analyst estimates of $5.058 billion (small miss)
  • EPS (non-GAAP): $2.49 vs analyst estimates of $2.44 (1.93% beat)
  • Revenue guidance for Q2 2022 is $4.8 billion at the midpoint, below analyst estimates of $5.23 billion
  • Free cash flow of $224 million, down 71.7% from previous quarter
  • Inventory Days Outstanding: 95, in line with previous quarter
  • Gross Margin (GAAP): 32.9%, up from 22.2% same quarter last year

“Strong demand across diverse end markets, particularly for our cloud products, combined with Western Digital’s strong innovation engine, broad routes to market and sharpened execution, enabled us to deliver solid results within our guidance range, even in the face of significant COVID impacts and supply chain disruptions,” said David Goeckeler, Western Digital CEO.

Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.

Sales Growth

Western Digital's revenue has been declining over the last three years, dropping annualy on average by 2.62%. But as you can see below, last year has been stronger for the company, growing from quarterly revenue of $3.92 billion to $5.05 billion. Semiconductors are a cyclical industry and long-term investors should be prepared for periods of high growth, followed by periods of revenue contractions (which can sometimes offer opportune times to buy).

Western Digital Total Revenue

Despite missing analyst estimates this quarter, 28.7% revenue growth for Western Digital's was still solid. We are still in the early days of the upcycle for the company, as this was just the 2nd quarter of year on year growth.

Western Digital believes the growth is set to continue, and is guiding for revenue to grow 22.3% YoY next quarter, and Wall St analysts are estimating growth 17.4% over the next twelve months.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) are an important metric for chipmakers, as the cyclical nature of semiconductor supply and demand impacts profitability. In a tight supply environment, inventories tend to be low, allowing chipmakers to exert pricing power, which helps increase gross margins. The inverse also applies, as rising inventory levels tend to foreshadow weakening pricing power and declining gross margins.

Western Digital Inventory Days Outstanding

This quarter, Western Digital’s inventory days came in at 95, 9 days above the five year average, suggesting that inventory levels are staying higher than what we used to see in the past.

Key Takeaways from Western Digital's Q1 Results

With a market capitalization of $17.2 billion, more than $3.29 billion in cash and with free cash flow over the last twelve months being positive, the company is in a very strong position to invest in growth.

We were very impressed by the strong improvements in Western Digital's gross margin this quarter. And we were also glad to see the improvement in operating margin. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and it slightly missed analysts' revenue expectations for this quarter. Overall, this quarter's results still seemed mixed, with some both positive and negative news. But the market was likely expecting more and the company is down 10.1% on the results and currently trades at $51.49 per share.

Should you invest in Western Digital right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.