Stock Story -
Leading data storage manufacturer Western Digital (NASDAQ: NASDAQ:WDC) reported results in line with analysts' expectations in Q2 CY2024, with revenue up 40.7% year on year to $3.76 billion. On the other hand, next quarter's revenue guidance of $4.1 billion was less impressive, coming in 3.1% below analysts' estimates. It made a non-GAAP profit of $1.44 per share, improving from its loss of $1.98 per share in the same quarter last year.
Is now the time to buy Western Digital? Find out by reading the original article on StockStory, it's free.
Western Digital (WDC) Q2 CY2024 Highlights:
- Revenue: $3.76 billion vs analyst estimates of $3.74 billion (small beat)
- Adjusted Operating Income: $666 million vs analyst estimates of $554.1 million (20.2% beat)
- EPS (non-GAAP): $1.44 vs analyst estimates of $1.17 (23.1% beat)
- Revenue Guidance for Q3 CY2024 is $4.1 billion at the midpoint, below analyst estimates of $4.23 billion
- Gross Margin (GAAP): 35.9%, up from 3.4% in the same quarter last year
- Inventory Days Outstanding: 126, up from 119 in the previous quarter
- Free Cash Flow of $282 million is up from -$37 million in the previous quarter
- Market Capitalization: $20.63 billion
Founded in 1970 by a Motorola (NYSE:MSI) employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.
Memory SemiconductorsThe rapid growth in data generation and the need to support increases in processing power for everything from consumer devices to data center servers are driving the demand for memory chips. From the content delivery networks and edge computing to the cloud, data storage is a key component underpinning the global technology architecture. On top of that, secular growth drivers like machine learning and the boom in media-rich digital content are further accelerating the need for storage. Like all semiconductor segments, memory makers are highly cyclical, driven by supply and demand imbalances and exposure to consumer product cycles.
Sales GrowthWestern Digital's revenue has been declining over the last three years, dropping by 4.5% on average per year. But as you can see below, this was a strong quarter for the company, with revenue growing from $2.67 billion in the same quarter last year to $3.76 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 had a great quarter as its 40.7% year-on-year revenue growth was in line with analysts' estimates. We believe the company is still in the early days of an upcycle, as this was just the second consecutive quarter of growth and a typical upcycle tends to last 8-10 quarters.
Western Digital's management team believes its revenue growth will accelerate, guiding to 49.1% year-on-year growth next quarter. Wall Street expects the company to grow its revenue by 39.4% over the next 12 months.
Product Demand & Outstanding InventoryDays Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business' capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.
This quarter, Western Digital's DIO came in at 126, which is 16 days above its five-year average, suggesting that the company's inventory has grown to higher levels than we've seen in the past.
Key Takeaways from Western Digital's Q2 Results We were impressed by Western Digital's strong gross margin improvement this quarter. We were also excited its revenue, adjusted operating income, and EPS outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter missed analysts' expectations and its inventory levels increased. Overall, this quarter still seemed fairly positive and shareholders should feel optimistic. The market was likely expecting a better outlook, however, and the stock traded down 4.5% to $64 immediately after reporting.
