Here's some industry comments by Western Digital...
FOOL PLATE SPECIAL
An Investment Opinion by Dale
Wettlaufer
A Western Digital Synopsis
Disk drive company Western Digital Corp.
(NYSE: WDC) gained $1 5/8 to $18 7/8 after
reporting Q2 EPS (before restructuring charges)
of $0.03, down from $0.67 in the first quarter
and $0.68 (adjusting for a 2-1 split in June 1997)
in the second quarter fiscal 1997. Despite the
happy-happy, joy-joy reports of Western Digital
beating estimates, the company's management
was very sober in their assessment of the quarter
and coming quarters during this morning's
conference call. That's not to say they were glum
or unenthusiastic, but they've been through a
number of industry cycles and were as realistic
about their outlook as they have been in upcycles.
Contrary to the somewhat laughable assertions of
those jumping on the class action lawsuit
bandwagon, Western Digital's management has
never blown smoke on their conference calls to
pump up expectations.
So, without opining as to the future of the disk drive industry, we present a
short synopsis of important points from the conference call. Bulleted points
are directly from the conference call, the other data are the Fool's and are
our responsibility.
-- Units sold equaled 5.8 million vs. Street expectations of 7.5 million units.
Units sold last quarter equaled 6.3 million. Average selling price was
$167.17 per drive vs. $173.04 last quarter. Inventory turned 14 times on
an annualized basis. Gross margin was 9%, down from 14.8% last quarter
(Q1).
That doesn't include charges for asset write-downs of inventories and
restructuring charges, which totalled approximately $148 million. Much of
that charge came through the cost of goods sold line.
Magnetoresistive (MR) head-equipped drives should get to 80% of units
shipped by the June quarter. MR drives accounted for 20% of units in Q2
and should reach 40% in Q3.
-- It is "...too early to declare the bottom of the cycle. We have seen
constructive steps taken by the major industry players in terms of
production cutbacks and restructuring programs, all of which will in the
long term hasten the industry's recovery."
-- Channel inventory is 8 weeks, down "somewhat" since the end of
December. Historically, the industry likes to see 4-5 weeks in the channel.
Channel sell-through ramped steadily through the quarter.
-- Inventory at suppliers and in the channel is still a problem.
Finished goods (number of drives) inventory at the company equaled 2.4
weeks.
Kathy Braun, President and Chief Operating Officer of the Personal
Storage Division, commented that cycles in the industry last one to three
quarters. Last quarter cannot be said to be the last quarter of this
downcycle, and it's hard to forecast results given the possibility of
aggressive pricing in quarter.
-- Key areas in return to profitability include the rapid transition to MR
head products and continuing the ramp of the company's enterprise storage
business (drives for servers and RAID mass storage systems). More than
10% of revenues in the December quarter came from the enterprise unit, a
first for the company. This unit is operating within expectations.
-- Customers are "asking for a slower roll to the bleeding edge" of capacity
per drive. That's an effect of the drive to sub-$1,000 PCs.
-- Average selling price (ASP) outlook is flat to down slightly in the coming
quarter.
-- Q3 units sold to come down sequentially and then rise slightly in Q4. |
