Growing Data Storage Business: Western Digital


Leveraged balance sheet may deter some investors

Shares of Western Digital, $24 billion data storage manufacturer and provider, have been on a fluctuating ride and traded in the range of $75 to $90/share and now at $80.59 at the time of writing.

The company also recently reported its first half operations. Western Digital or WDC reported 9.5% rise in revenue and losses of $142 million compared to $131 losses a year earlier. WDC may have recorded a good amount of profits if it were not for its income tax expenses rose almost nine times to $1.6 billion in the recent period.

“We continued our strong financial performance in the December quarter, with nine percent year-over-year revenue growth, driven by each of our major end-market categories and solid execution by our team.

“We once again generated strong operating cash flow, reflecting continued healthy demand in our end markets, most notably for our capacity enterprise hard drives and flash-based products.

“I am very pleased with our technology and product development execution. The deployment of our 64-layer 3D flash technology continued across our product portfolio and we will be ramping our 96-layer technology later this calendar year. We continue to lead the industry with our high-capacity helium HDD platform in 10, 12 and 14 terabyte capacities and we remain on plan to sample our MAMR-based capacity enterprise drives in the second half of calendar 2018. I am also pleased that we resolved our negotiations with our JV partner Toshiba in December and ensured our long-term access to flash.”

Steve Milligan, chief executive officer

The company had $12 billion in debt (1.1x debt-equity) and a book value of $11.3 billion.
Meanwhile, WDC announced a tender offer for ~$3.5 billion of its debt in late January.

In the past three fiscal years, WDC raised $5.1 billion in financing activities and generated $5.9 billion in free cash flow.

Analysts have an average price target of $112.11/share vs. $80.63 at the time of writing. Conservative calculations indicated per share figure of $89.55.

Disclosure: No WDC shares.

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