Western Digital Faces 'Challenging Pricing Environment,' But There's Long-Term Potential: Analysts

Wall Street analysts rerated Western Digital Corp WDC after the company offered several updates on Thursday, including its fourth-quarter results and the departure of its CFO.

Western Digital announced that its current CFO, Wissam Jabre, would retire effective Feb. 28, following the planned separation of the company’s Flash and HDD businesses. Following the transaction, the company will begin a search for a new CFO.

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The company previously announced that Jabre would serve as the CFO of the HDD business post-split alongside Irving Tan as the CEO.

Western Digital announced that it expects second-quarter fiscal 2025 revenues to fall at the mid-point of its prior guided range of $4.20 billion-$4.40 billion, with adjusted EPS to fall at the low end of its previously guided range of $1.75-2.05. Downside is attributed to a more challenging pricing environment in NAND than previously expected.

Cantor Fitzgerald analyst C J Muse reiterated Western Digital with an Overweight and a $95 price target.
JPMorgan analyst Harlan Sur has no rating on Western Digital.
Barclays analyst Tom O’Malley maintained Western Digital with an Overweight and lowered the price target from $90 to $80.
Benchmark analyst Mark Miller reiterated a Hold rating on Western Digital.
BofA maintained a Buy rating and raised the price target to $84 from $80.
Morgan Stanley analyst Joseph Moore maintained a Buy rating on Western Digital with a price target of $93.

Cantor Fitzgerald: Post-close, Western Digital provided several meaningful updates, including an update for fourth-quarter results (revenue at mid-point and EPS at the low end of the prior guide) and the announcement of the departure of the company’s CFO, who was likely to transition to remain CFO of Western Digital post the NAND asset spin.

Considering the weakening NAND backdrop, the updated guide is likely better than feared by the buy side. This does not mean Western Digital is out of the woods yet, the analyst notes.

Muse sought Western Digital to guide March quarter EPS closer to ~$1.20, with a current consensus of $1.58. Muse looked to update his model after Jan. 29.

The departure of the CFO is more alarming, given expectations for management continuity. The change does not indicate any issues with Western Digital, but rather an opportunity that Wissam could not pass up.

The final takeaway is that the CFO plans to stay until Feb. 28. Thus, a clear clue to the anticipated timing of the spin now is just six weeks away at most. As for shares, Muse senses investors have been waiting for the estimate reset on Jan. 29 before engaging more aggressively on the long side into the SNDK and analyst days scheduled for Feb. 11 and 12 and into the expected share spin in the second half of February.

Muse projected second-quarter revenue of $4.18 billion and EPS of $1.72.

JP Morgan: After the market close yesterday, Western Digital negatively preannounced December quarter results, with revenue expected to land in line with the mid-point of guidance ($4.2 billion-$4.4 billion) while EPS will likely be on the lower end of its previous guided range ($1.75- $2.05) primarily due to a more challenging pricing environment within its NAND business.

The weaker NAND pricing trends observed by Western Digital should not be a big surprise as the team telegraphed softening NAND pricing at investor conferences in early December, citing elevated inventory levels and sluggish demand in PC, smartphone, and retail, resulting in a few choppy quarters and mid-cycle pause as customers continue to work down excess inventory.

NAND pricing and demand trends should improve by the September quarter as excess inventory is flushed out, and favorable content tailwinds and adoption of edge AI devices drive renewed NAND memory procurement.

Consistent with what we heard on Micron Technology, Inc’s MU earnings call, Sur noted Western Digital is also seeing a temporary pause in eSSD shipments in the first half as demand trends at cloud and data center customers tend to be lumpy. Looking ahead, Sur noted strong AI compute infrastructure demand is driving increased storage demand across both nearline HDD and eSSD in the datacenter end-market and is providing a favorable backdrop for long-term growth and margin expansion.

On the back of weaker pricing trends in NAND, Sur lowered his calendar 2025 estimates. Excess inventory and seasonal headwinds in PC, smartphone, and retail will likely persist through the first half of 2025.

Expect pricing and demand trends in NAND to improve through the back half of 2025. Consumer and cyclical segments of the market will begin to recover, he adds.

Sur projected second-quarter revenue of $4.25 billion and EPS of $1.75.

Price Action: Western Digital stock is up 2% at $65.54 at last check Friday.

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