Factors Setting the Tone for Western Digital's (WDC) Q2 Earnings
Western Digital WDC is slated to release second-quarter fiscal 2021 results on Jan 28.
For second-quarter fiscal 2021, the company projects non-GAAP earnings between 40 cents and 60 cents per share. The consensus mark for earnings is pegged at 52 cents per share, which suggests a decline of 16.1% from the year-ago quarter. Notably, the estimates have been stable in the past 30 days.
Western Digital expects revenues in the range of $3.75-$3.95 billion in the fiscal second quarter. The Zacks Consensus Estimate for revenues is currently pegged at $3.87 billion, indicating a decline of 8.7% from the prior-year reported figure.
Factors to Note
Cloud and hyperscale customers have been witnessing solid demand driven by surge in data consumption as people are increasingly working and studying from home due to the ongoing coronavirus pandemic.
This has led to a spike in bandwidth and latency issues, which has created the need for efficient storage infrastructure at the edge. This, in turn, is anticipated to have bolstered demand for Western Digital data center solutions’ portfolio, which might get reflected in fiscal second-quarter top line. This includes products like NVMe SSDs, Ultrastar DC SN340 and Ultrastar DC SN640.
Western Digital Corporation Price and EPS Surprise
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Additionally, growing demand for the company’s high-capacity drives and 16 and 18-terabyte energy assisted drives is anticipated to have favored the to-be-reported quarter’s performance.
Moreover, increasing PC shipments triggered by coronavirus crisis induced work-from-home wave and online schooling wave is likely to have contributed to Western Digital’s fiscal second-quarter performance. Per Gartner’s preliminary data, PC shipments rose 10.7% in the fourth quarter of calendar year 2020.
Improvement in PC shipments in the fourth quarter of the calendar year 2020 is likely to have driven sales of the company’s solid-state drives (SSDs) on improving demand from notebooks and video game consoles. Also, incremental adoption of latest high-capacity hard disk drives (HDDs) products with robust storage capabilities is likely to have had positively impacted Client Devices’ segment’s fiscal second-quarter performance.
In fact, during the quarter under review, Western Digital, currently carrying a Zacks Rank #3 (Hold), announced that Dropbox DBX will be one of the first enterprises that has qualified for Ultrastar DC HC650 20TB SMR HDD. The latest 20TB HDD will enable Dropbox to improve customer experience while lowering costs. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
However, weakness in capacity enterprise HDD sales is anticipated to have negatively impacted the top-line growth. Notably, the Zacks Consensus Estimate for Client Devices revenues for the fiscal second quarter is currently pegged at $1.617 billion, which suggests a decline of 10% from the year-ago quarter.
Further, HDD business is expected to stay under pressured due to ongoing transition to SSDs. The Zacks Consensus Estimate for HDD revenues for the fiscal second quarter is pegged at $1.869 billion, indicates a slump of 22% on a year-over-year basis.
Markedly, incremental adoption of latest flash solutions in Microsoft’s MSFT latest Xbox Series X and Sony’s PlayStation 5 gaming consoles over the holiday season is expected to have contributed to the Flash revenue numbers. Also, continued momentum in demand for Enterprise SSDs might get reflected in the Flash portfolio’s fiscal second-quarter top line.
The Zacks Consensus estimate for Flash revenues for the fiscal second quarter stands at $1.997 billion, indicating an improvement of 8.7% over the prior-year quarter.
Also, coronavirus induced weakness across small and medium businesses is likely to have limited growth. Also, increasing expenditure on product innovation and development amid stiff competition in the disk drive market from Seagate STX might have weighed on the fiscal second-quarter profitability.
The consensus for revenues from Data Center Devices Solutions stands at $1.458 billion, which indicates a decline of 2.1% from the prior-year quarter.
Furthermore, the Zacks Consensus Estimate for Client Solutions revenues for the to-be-reported quarter is currently pegged at $806 million, which suggests a deterioration of 15% from the prior-year reported figure.
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