Why Western Digital (WDC) Shares Are Falling Today

What Happened:

Shares of leading data storage manufacturer Western Digital (NASDAQ: WDC) fell 11.7% in the morning session after the company reported second-quarter earnings results. Its revenue guidance for the next quarter missed analysts' expectations, and its inventory levels increased. 

Separately, the company added that on July 26, 2024, a jury awarded $262 million against its subsidiary in a patent infringement action. While it plans to appeal the decision, it expects the process to incur additional legal fees. Lastly, the business has yet to make an appropriate accounting decision regarding the matter. Overall, it was a weaker quarter for the company.

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What is the market telling us:

Western Digital's shares are very volatile and over the last year have had 8 moves greater than 5%. But moves this big are very rare even for Western Digital and that is indicating to us that this news had a significant impact on the market's perception of the business. 

e biggest move we wrote about over the last year was 9 months ago, when the stock gained 14.8% on the news that the company reported first-quarter results that blew past analysts' EPS expectations, driven by strong outperformance in its flash memory division. We were also glad its inventory levels shrunk. 

On the other hand, its operating margin fell, and its gross margin shrunk. Aside from the earnings print, Western Digital said it would separate its HDD and flash memory businesses into two independent, public companies. The spin-off comes after activist hedge fund Elliot Management disclosed a nearly $1 billion stake in the company last year. Elliot is known for pushing its portfolio companies to pursue value-added strategies for shareholders. The transaction is targeted for the second half of calendar year 2024. Overall, it was a mixed quarter for the company.

Western Digital is up 16.9% since the beginning of the year, but at $59.50 per share it is still trading 25.8% below its 52-week high of $80.24 from July 2024. Investors who bought $1,000 worth of Western Digital's shares 5 years ago would now be looking at an investment worth $1,071.

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