Strong flash performance underpins Western Digital Q3

Western Digital revenues climbed 14 per cent on the back of record flash memory performance to $4.18bn in the third fiscal 2020 quarter ended April 3. The company generated $17m net income, a big improvement on the -$581m loss for the same period last year.

David Goeckeler, WD’s new CEO, said in a statement: “While I couldn’t have anticipated the unprecedented series of events that have transpired, I’m very proud of how the company has responded to an extremely dynamic environment with dedicated focus both on our employees’ safety as well as delivering our market leading technology to our customers.”

Flash up, HDD down

WD’s HDD revenues fell 2.4 per cent in the quarter to $2.1bn. Total disk exabyte shipments fell six per cent Q/Q but capacity enterprise exabyte shipments grew 50 per cent Y/Y. WD said this means it maintained the leading position in the capacity enterprise drive category.

WD’s flash revenues jumped 28 per cent to $2.1bn, and now equals the company’s HDD business in size.

Earnings call

In the earnings call Goeckler said: “We encountered some supply disruptions in the quarter. However, due to the efforts of our operations team, we saw supply trends improve as the quarter progressed.” However, there were “additional costs associated with logistics and other manufacturing activity.”

The disk issue

In the earnings call Wells Fargo analyst Aaron Rakers commented: “It looks like you definitely kind of underperformed some of your peers on nearline” – Seagate’s high-capacity enterprise disk drives, in other words.

Goeckeler replied: “On the nearline side, I mean, look, we’re happy with where the product performed. The 14-terabyte is still performing well. 18-terabyte shipped for revenue this quarter, as we talked about. That we made that commitment, we delivered on that… we’re happy with where the portfolio is.”

The problem, as we see it, is that Seagate is shipping a lot of 16TB drives, unlike WD which is focusing on 14TB drives. WD is pinning hopes on its 18TB drive doing well, while Seagate has a 20TB drive on its way.

Rakers’ chart showing WD’s loss of nearline disk exabytes shipped market share

In a mail to subscribers Rakers estimated WD has lost nearline drive market share to Seagate, with a nine per cent Q/Q drop to 45 per cent (see chart above.)

WD’s combined HDD and SSD client devices revenues grew 13 per cent in the quarter to $1.83bn. The company attributed pandemic-induced home working fuelled strong demand for notebook SSDs. Data Centre product revenues grew 2 per cent to $1.5bn and Client Solutions (consumer retail products) brought in $821m, up 2 per cent on the year, with retail sales affected by the pandemic.

The Q4 outlook is $4.35bn revenues at the mid-point estimate, up 19.7 per cent and would mean full fy2020 revenues of $16.86bn, up 1.6 per cent. CFO Bob Eulau anticipates fourth quarter client SSD revenues will grow strongly as working from home continues. Also new games consoles will use more flash instead of disk storage.

WD has suspended dividend payments to conserve cash.

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