Western Digital Likely For Sharp Revenue Decline Taking Cue From Seagate, Intel & Microsoft, Analyst Says

Credit Suisse analyst Shannon Cross reiterated Neutral on Western Digital Corp WDC with a $42 price target.
Western Digital will likely report 2Q23 results after the market on Jan. 31, 2023.
The analyst estimates 2Q23 revenue of $2.93 billion (down 39% Y/Y), vs. consensus of $2.98 billion and guidance between $2.9 billion - $3.1 billion.
Cross believes demand remains weak across most end markets (e.g., PCs, smartphones, cloud, smart video). However, management pointed to better visibility weekly at its Annual Technology Conference in November.
The analyst estimates HDD revenue declined 33% Y/Y to $1.48 billion, reflecting inventory digestion at cloud and OEM customers and ongoing weakness in China, taking a cue from Seagate Technology Holdings PLC's STX 2Q23 results.
Cross estimate Flash revenue declined 45% Y/Y to $1.44 billion driven by a deteriorating pricing environment (NAND pricing was down >20% Q/Q), continued weak smartphone and notebook demand, and cloud digestion taking a cue from Intel Corp INTC and Microsoft Corp MSFT.
Cross expects signs of meaningful demand recovery to begin in 4Q23 (June).
Related: Intel Sellers Pile On After Chipmaker's Q4 Miss: What You Need To Know
The analyst estimated gross margin declined 1,364 bps Y/Y to 19.9%, mainly driven by underutilization charges, and the estimated operating margin was down 2,081 bps Y/Y to negative 2.6%.
As a result, the analyst estimates non-GAAP EPS of negative $(0.23) vs. consensus of negative $(0.15) and guidance between negative $(0.25) - $(0.05).
While management is confident this downcycle is temporary, the analyst thinks near-term uncertainty surrounding the strategic review will add to volatility.
Price Action: WDC shares traded lower by 1.82% at $44.15 on the last check Monday.

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