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During a Barclays conference in mid-December, data storage and memory company Western Digital (WDC) reminded analysts and investors that it expects the choppiness that it has encountered recently to continue over the next few quarters. The choppiness that WDC telegraphed was on display last night after the company issued an updated Q2 outlook, forecasting EPS to come in at the lower end of its prior guidance range of $1.75-$2.05 as it continues to contend with a challenging pricing environment in its flash business, which has experienced softness in the PC OEM and consumer end markets.

• Like fellow memory company Micron (MU), WDC is seeing robust demand in cloud and data center, fueling strong growth in its HDD business -- revenue soared by 85% yr/yr in HDD in Q1 -- with demand for its products exceeding supply. This strength is expected to continue in FY25, bolstered by rising adoption for WDC's UltraSMR product line among cloud customers. However, since WDC merely reaffirmed its Q4 revenue guidance, forecasting revenue to come in at the midpoint of its prior guidance range of $4.20-$4.40 bln, it's evident that the Consumer segment (revenue was -7% in Q1) hasn't turned a corner yet.
• Rewinding to WDC's Q1 earnings call on October 24, executives commented that a recovery in the Consumer and Client end markets, which include PCs, notebooks, set-top boxes, wearable devices, and automotive applications, is anticipated to materialize through CY25. The fact that WDC didn't cut its revenue guidance is providing a sigh of relief, but the lack of improvement also indicates that this recovery hasn't gained much steam yet.
• In addition to the updated guidance, WDC also announced that its CFO, Wissam Jabre, will be stepping down following the completion of the planned spin-off of the flash business in late February. Recall that in October 2023, the company's Board of Directors green-lighted a plan to separate the flash and HDD businesses into two independent publicly traded companies. This separation, which was previously expected to be completed in 2H24, should help to unlock value by allowing the market to value each business independently of each other.

The main takeaway is that WDC's updated guidance removes some uncertainty and takes the worst-case scenarios off the table ahead of its Q2 earnings report on January 29. With that said, the company is still grappling with some stiff headwinds in the flash business, offsetting strength in data center. When WDC reports earnings in about two weeks, the focal point will rest on its guidance for Q3 as participants look for signs of a recovery in the struggling consumer business.