Earnings preview: NAND flash to hurt Western Digital Q3 results

Data storage provider Western Digital (NASDAQ: WDC) is scheduled to report its earnings results for the third quarter of 2019 on Monday after the market closes. The results will be hurt by the declining NAND flash prices caused by muted demand, and lower average selling prices (ASP) per gigabyte due to abundant supply.

The results will be adversely impacted by uncertain macroeconomic conditions, falling PC shipments trend, and softness in NAND flash pricing trends. The chipmakers were experiencing a delay in deployment of capital equipment due to softening demand that was caused by trade tensions between the US and China and foreign exchange volatility.

In addition, the company has been struggling to lower the debt levels for quite some time now. Western Digital’s burden is likely to rise and make it difficult to pay or refinance debts due to any downturn in macroeconomic and foreign exchange volatility conditions.

Analysts expect the company’s earnings to plunge by 87.30% to $0.46 per share and revenue to dip by 26.70% to $3.68 billion for the third quarter. In comparison, during the previous year quarter, the company posted a profit of $3.63 per share on revenue of $5.01 billion.

The company has surprised investors by beating the expectations in the two of the past four quarters. Traders predict Western Digital to surprise the market by exceeding the consensus. Majority of the analysts recommended a “strong buy” or “buy” rating while expecting the stock to reach $58.74 per share in the next 52 weeks.

For the second quarter, Western Digital reported a narrower loss due to lower income tax expense despite a 20.6% dip in revenue. The top line was hurt by lower demand from its clients across all its divisions. Client Devices reported a 16.4% dip in revenues over last year due to weak demand and falling flash prices in the mobility and embedded applications.

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For the second quarter, Client Solutions revenue was down nearly 25% due to softening demand and pricing pressure on flash and HDD products. Reduced cloud spending from its clients resulted in Data Center Devices and Solutions revenue decreasing by 25% in the second quarter.

For the third quarter, the company had expected revenue in the range of $3.6 billion to $3.8 billion and adjusted earnings in the range of $0.40 to $0.60 per share. Gross margin was predicted to be in the 18% to 19% range and operating expenses were anticipated to be in the range of $910 million to $930 million.

In the storage market, Western Digital has been facing stiff competition from Seagate Technology (NASDAQ: STX), Intel (NASDAQ: INTC), Samsung, and Hitachi. This is likely to result in a fall in the average selling price. For the second quarter, when the average selling price was $67, Western Digital has shipped 30.2 million hard disk drives, which was lower than the year-ago shipments of 42.3 million.

Shares of Western Digital opened lower on Friday and is trading in the red territory. The stock has fallen over 42% in the past year while it has risen over 15% in the past three months.

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