Western Digital Corp. 10-Q Summary
Business Context and Reporting Period
Western Digital Corporation (Delaware) filed a Quarterly Report (Form 10-Q) for the three-month and six-month periods ended December 30, 1995. The company is a manufacturer of hard drive products and input/output products. As of February 1, 1996, there were 45,122,582 shares of Common Stock outstanding.
Key Financial Metrics
| Metric | Three Months Ended 12/30/95 | Three Months Ended 12/31/94 | Six Months Ended 12/30/95 | Six Months Ended 12/31/94 |
|---|---|---|---|---|
| Net Revenues | $757,992 | $551,944 | $1,316,141 | $1,016,534 |
| Operating Income | $21,175 | $47,330 | $27,340 | $85,232 |
| Net Income | $36,393 | $42,554 | $44,720 | $77,272 |
| Diluted EPS | $0.75 | $0.85 | $0.89 | $1.55 |
| Operating Cash Flow (6mo) | $16,174 (vs $59,745 prior year) | |||
| Cash & Equivalents | $206,798 (Dec 30, 1995) | |||
| Short-term Investments | $62,831 (Dec 30, 1995) | |||
| Total Debt | None (Outstanding debt eliminated) |
Material Changes vs. Prior Period
- Revenue Growth: Net revenues increased 37% year-over-year for the quarter and 29% for the six-month period, driven by a 54% increase in hard drive unit shipments. This growth was partially offset by declining average selling prices.
- Margin Compression: Overall gross profit margins declined to 13.6% for the quarter (from 19.8% prior year) and 14.0% for the six-month period (from 20.3% prior year). Hard drive margins fell to 13.1% due to competitive pricing pressures and a shift toward lower-capacity products.
- Operating Income Decline: Operating income dropped 55% for the quarter and 68% for the six-month period compared to the prior year, despite revenue growth, due to margin compression and increased operating expenses.
- Expense Increases: R&D expenses rose 25% (quarter) and 33% (six-month) year-over-year to support higher-capacity product development. SG&A expenses increased 41% (quarter) and 25% (six-month) due to higher royalty expenses and support for increased revenue levels.
- Divestiture: The company sold its Multimedia business in October 1995 for approximately $51.9 million, recognizing a gain of $17.275 million. This transaction significantly reduced input/output product revenues.
Guidance, Outlook, and Risks
The filing does not contain specific forward-looking financial guidance or numerical targets for future periods. Management commentary highlights that future profitability depends on competitive conditions, general economic conditions, manufacturing efficiency, and the timely introduction of new products. The company has eliminated its outstanding debt, improving net interest income. Significant cash outflows included $72.7 million for share repurchases and $35.4 million in capital expenditures to support production increases.
Investor Verification Checklist
- Margin Sustainability: Verify if the decline in hard drive gross margins (from 17.4% to 13.1%) is a temporary result of product mix or a structural shift due to pricing pressure.
- Unit Volume vs. Price: Confirm the trajectory of average selling prices (ASP) relative to unit shipment growth to assess revenue quality.
- Working Capital Trends: Review the increase in accounts receivable ($57M cash outflow) and inventories ($30.7M cash outflow) to ensure they align with sales growth and do not signal collection or obsolescence risks.
- Share Repurchase Impact: Assess the impact of the $72.7 million stock buyback on liquidity and future capital allocation flexibility.
- Post-Divestiture Performance: Monitor the performance of the remaining input/output product line following the sale of the Multimedia business.