Western Digital Reports Mixed Q2 Ahead Of Business Split: AI Demand Bolsters Outlook

Western Digital Corp., WDC which will be splitting its business by the end of February, reported a mixed second quarter. However, the company remains confident it will benefit from the rising AI storage needs.

What Happened: While WDC’s revenue was in line, it missed the earnings per share estimates for the second quarter.

Western Digital, a data storage company that designs, develops, and manufactures hard disk, solid-state, and flash-based devices is going to split its Flash businesses after Feb. 21, following which SanDisk’s shares will trade separately on exchanges.

As pointed out by the current CEO of the company, David V Goeckeler, who will eventually helm SanDisk after the split, the company witnessed strong growth in high-capacity enterprise HDDs, but its Flash business faced short-term pricing challenges.

“Despite these challenges, we are strategically well-positioned to capitalize on growing long-term storage demand from the AI data cycle. Our HDD business continues to perform well, propelled by our cutting-edge UltraSMR technology,” Goeckeler said.

The increased pricing pressure in the Flash business was led by temporary oversupply and exhaustion of its existing inventory. This impacted WDC’s shipments, despite increased production throughout the year, said the CEO.

However, its cloud storage pricing was positive, “given continued AI-driven demand,” added Goeckeler.

Why It Matters: Western Digital missed earnings by 3.0%, reporting an EPS of $1.77 versus an estimate of $1.82. Revenue was at $4.285 billion, as compared to Benzinga’s estimate of $4.26 billion for the quarter.

The outgoing CFO of the company, Wissam G Jabre, issued the third quarter guidance on a combined basis. “We anticipate overall revenue to be in the range of $3.75 billion to $3.95 billion. Gross margin is expected to be between 31.5% and 33.5%,” he said.

Lastly, CEO Goeckeler added, “Both companies will continue to be driven by the structural long-term tailwinds of the AI data cycle and our ability to consistently offer our customers the most compelling and innovative storage solutions.”

Price Action: WDC shares closed 0.11% lower on Wednesday and advanced by 2.52% in after-hours to $64.38 per share, outpacing the exchange-traded fund tracking the S&P 500 index SPDR S&P 500 ETF Trust SPY, which declined by 0.45% to $601.81.

According to the 26 analysts tracked by Benzinga, WDC has a consensus price target of $78.33 per share with a ‘buy’ rating. The highest target price is $115 and the lowest is $41.

The average price target of $86.33 apiece between BofA Securities, Cantor Fitzgerald, and Barclays implies a 34.10% upside.