Saturday, July 23, 2011

BUY !!! Western Digital Corporation Com (NYSE: WDC )

Western Digital Corp. (NYSE:WDC) reported fourth quarter 2011 earnings per share (EPS) of 81 cents, comprehensively exceeding the Zacks Consensus Estimate of 67 cents.
Revenues in the fourth quarter of 2011 inched up 0.9% year over year to $2.4 billion.
Moderation in average selling price (ASP) led to a 7% sequential and 1% year-over-year decline in revenues. Price declines in the quarter were in line with the company’s expectation but less than the seasonal norm. Average product capacity increased moderately, but higher volumes, tight cost management and improved utilization enabled the company to surpass the upper end of its gross margin guidance.
Revenue from sales of WD TV Media Players, WD Livewire Network Kits and solid-state drives totaled approximately $33.0 million, up 23.0% from the prior-year quarter but seasonally down 34.0% from the previous quarter.
Geographically, demand in Asia was particularly strong in the quarter as revenues in the region grew 60% versus 54% in the March quarter, while revenues from Americas and Europe declined.
Operating Results
Gross margin in the reported quarter was 19.5% versus 22.5% in the year-ago quarter and 18.2% in the previous quarter. The quarter-over-quarter increase of 130 basis points in gross margin was attributable to stable pricing in the client compute market, coupled with increased utilization of manufacturing assets due to higher volume.
Consolidated research and development (R&D) as well as selling, general and administrative (SG&A) spending stood at $297.0 million or 12.4% of revenues in the fourth quarter, compared with $242.0 million or 10.2% of revenues in the year-ago quarter. Operating income came in at $172.0 million or 7.1% of revenues in the fourth quarter, compared with $293.0 million or 12.3% of revenues in the year-ago quarter.
Net income decreased to $158.0 million or 67 cents per share from $265.0 million or $1.13 in the year-ago quarter. The adjusted net income for the quarter was $193.0 million or 81 cents per share compared with $292.0 million or $1.24 per share in the year-ago quarter.

Cash Position
The company generated $447.0 million of cash from operations in the quarter, up from $390.0 million in the previous quarter. Cash and cash equivalents were $3.49 billion, up from $3.20 billion reported in the previous quarter. Capital expenditures were $153.0 million, while depreciation and amortization totaled $150.0 million. The company made debt repayment of $31.0 million during the June quarter and thereby reduced its debt balance to $294 million.
Our Take
Western Digital’s fourth quarter 2011 results exceeded our expectations although total sales remained flat on a year-over-year basis. The company is trying to lower its interest expense by reducing debt burden. Although Western Digital is cash rich, its cash generation ability has been tempered to an extent due to the difficult pricing environment.
Moreover, the company recently disclosed its intention of acquiring Hitachi Global Storage Technologies (NYSE:HIT) to strengthen its foothold in the data storage business. However, intense competition in the hard disk manufacturing space and within its distribution channel remains a concern.

 Analysts' Targets
 UBS Securities$42 
    Wednesday, June 15, 2011
 Rodman & Renshaw Inc.$51 
    Mkt Perform
    Thursday, May 12, 2011
 Brean Murray & Co.$48 
    Thursday, April 21, 2011
 Stifel Nicolaus$45 
    Tuesday, April 12, 2011
 Barclays Capital$45 
    Friday, April 08, 2011

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