Categories Analysis, Technology

Western Digital (WDC) stock jumps to yearly high on recovery stance

Western Digital Corporation (NASDAQ: WDC) stock jumped to a yearly high of $70.50 on Tuesday as signs of recovery are expected to drive the company’s future to stable growth. The shares have risen over 73% in the past year and over 19% in the past three months while it has fallen over 34% in the past five years.

The stock, which has been trading in the higher end of the 52-week range of $35.02 to $70.50, exceeded the 50-day and 200-day moving average of $57.51 and $56.42, respectively. The company has struggled during 2019 due to weak financial performance and unfavorable market conditions.

Western Digital
Courtesy: Emilian Robert Vicol from Pixabay

The company is likely to leverage its revamped product portfolio for returning to growth. Along with this, the looming 5G-smartphone production could be beneficial for Western Digital due to the increase in memory chips demand. The company’s performance could be driven by improved NAND pricing, improving HDD margins, and enterprise SSD market gains.

The company’s financial results, which improved sequentially in the first quarter, are expected to continue to improve in the second quarter consistent with its guidance. The pricing environment in the flash market is likely to improve and this along with margin expansion could be one of the reasons behind the growth in the second quarter.

Western Digital is likely to see its margin improving during fiscal 2020. The company is expected to increase its market presence in the enterprise SSD area, which is a higher margin opportunity. The company could also be beneficial by the mobile market as the NAND market is seen to recover backed by an improved pricing environment.

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For improving gross margins, the company could make a lot of cost structure improvements and focus on using working capital more effectively. The company continues to believe in providing customers with high-reliability solutions backed by solid cost structure and product advantages in terms of its areal density.

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Western Digital expects good growth in bits in the capacity hard drives space in the future with an expectation of 35% bit growth per year. The company’s highest-volume product is the 14 terabyte drive. The majority of the industry experts believe that the top volume through June of this year will be the 14 terabyte drive and the 18 terabyte drive could take over the top after July.

For the first quarter, the company slipped to a loss from a profit last year, as the continuing slowdown in the flash memory market hurt the top line by 20%. The overall demand environment remained solid. The company continues to believe the flash industry has passed a cyclical trough, with improving trends across the flash product portfolio.

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