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Western Digital (WDC) is "flashing" green today thanks to a strong Q2 (Dec) earnings report last night and bullish guidance for Q3 (Mar). WDC has been suffering through a multi-quarter cyclical downturn in terms of flash pricing, mainly because too much supply has been in the market. But this earnings report seems to indicate there's a light at the end of the tunnel.
It's understandable the stock was moving higher (before puling back as market weakened) based on the following key points from the report:
- WDC reported EPS that was better than analyst expectations.
- After three misses in a row, WDC has now posted back-to-back $0.04 EPS beats, which is encouraging.
- Revenue was in-line.
- While the DecQ results were good, what really stands out is the guidance for MarQ.
- WDC guided to EPS of $0.85-1.05, well above the $0.75 consensus.
- Revenue is expected at $4.10-4.30 bln, also nicely above the $4.07 bln consensus.
- On the call, management said that it believes inventory in the flash supply chain has returned to normal levels. In fact, with strong demand for its products, WDC says it's even experiencing pockets of tightness.
- Management went on to say that, as it enters the March quarter, flash pricing continues to improve.
What stands out to us are the comments that flash pricing is improving and WDC has even see some area of tightness. WDC's last update on the flash market was that it believed that it "had passed the cyclical trough." So WDC's comments last night are consistent and perhaps a little more bullish and definitive than its prior comments. Furthermore, we interpret WDC's MarQ bullish guidance as the company putting its money where its mouth is. It's not just saying the market is improving, it's bumping up its numbers pretty substantially and setting the bar higher. This report bodes well for its rival Seagate (STX), which reports earnings on Feb 4.
