Weak flash demand and disk sales leave Western Digital scrabbling to claw back $800m a year

Revenue drops 20% as market slackens, with worse to come

cuts

Western Digital is about to go into cost cutting mode to carve out $800m in savings, after reporting shrinking revenues of $4.23bn for its second fiscal 2019 quarter, down by a fifth compared to the year ago period.

Losses were almost halved from $823m to $487m for the three months ended 28 December 2018. Gross margin was 31.3 per cent and operating cash flow stood at $469m. It built 30.3 million disk drives in the quarter, compared to 42.3 million.

Western Digital now makes both flash and disk products: flash revenues came in at $2.2bn, down 18 per cent year-over-year and disk was down 23.5 per cent to $2.1b. Disk exabytes shipped in the quarter declined 17 per cent on the year.

CEO Stephen Milligan talked of a "softening business environment", saying "demand trends exhibited a negative bias as the quarter progressed". He added that WD was "taking actions to better align our cost and expense structure to near-term business conditions".

Downturn factors were said to include reduced demand for mobile handsets, a continued investment slowdown by hyperscale customers, inventory adjustments at certain customers and geopolitical volatility.

WD is controlling costs by lowering factory production levels, and reducing flash wafer output and bit supply growth. It's slowing the pace of flash capital investments and accelerating the closure of its Kuala Lumpur disk drive factory.

In the earnings call, Milligan said: "We are implementing substantial cost and expense reductions across the company. In total, we are targeting $800m in annualised reductions."

Western Digital will be sampling 96-layer 3D NAND enterprise NVMe SSDs by June. Mainstream 96-layer client SSDs will be shipping in March. A 16TB, 8-platter disk drive is coming later in the year, using MAMR technology, with an 18TB drive on the horizon after that.

Susquehanna International Group analyst Mehdi Hosseini asked twice if Western Digital and TMC, its flash foundry joint-venture partner, could get closer together to better deal with the downturn. Milligan said: "I'm not going to speculate on that," and stopped this line of questioning.

The outlook for the next quarter is dire; revenues of $3.6bn, a 28 per cent drop from the $5bn reported in the corresponding quarter a year ago. Yet Milligan sees some pick-up in the second half of 2019 and said he is confident about long-term growth. ®

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