Recession ending for Western Digital
And they're breathing down Seagate's neck
Western Digital results for its fourth fiscal 2009 quarter are signalling the possible end of the recession in the hard disk drive market, and it is poised to overtake Seagate in unit drive shipments.
World number 2 hard disk drive manufacturer WD saw fourth quarter revenues of $1.928bn, down 3 per cent from the previous year's $1.99bn, but up 21 per cent sequentially, and easily beating Wall St expectations. It had previously set guidance for revenues of $1.45bn-$1.60bn.
Net income was $196m, down 8 per cent year-on-year, but up markedly from the $50m reported for the third quarter. Demand for its drives soared in the quarter and it shipped 40 million of them, compared to 35.2 million the year before. Interestingly, Seagate shipped 40.63m drives in its last reported quarter: that's only a 1.58 per cent advantage over WD.
WD shipped 16.9m 2.5-inch drives, which Stifel Nicolaus analyst Aaron Rakers believes was up a startling 67.3 per cent sequentially. That gives it a 30 per cent share of that market, with Seagate in second place with a 21 per cent share. WD noted that inventory levels in the industry were at the lowest levels for five years at the end of its fourth quarter, implying that channel restocking was not behind the rise in drive shipments.
Through restructuring and facility closure, WD cut costs and its gross margin rose to 19.2 per cent, far above the company's previous guidance of 15.5 per cent.
Full 2009 fiscal year revenues were $7.5bn, down 8 per cent from 2008's $8.1bn. Net income for 2009 was $470m, down almost a half from $867m a year ago. Large chunks of the decrease were due to a $112m restructuring charge and $14m costs in buying SSD maker SiliconSystems.
The rise in demand for its drives has led WD to start hiring another 5,000 permanent employees for its plants in Thailand. The company confirmed expectations and said it will enter the enterprise SAS drive market next year, taking it it into direct competition with Seagate in this market. The initial product is expected to be a 10,000rpm 2.5-inch SAS drive.
Given the minuscule difference in drive shipment numbers this quarter between WD (40m) and Seagate (40.63m), and WD's greater share in the growing 2.5-inch sector, plus an areal density advantage here - 333GB/platter versus Seagate's 320GB/platter - it is feasible that WD could exceed Seagate in unit drive shipments next quarter. That would be a huge upset to Seagate's accustomed leadership position.
Rakers points out that WD's "retail performance continues to under-perform that of Seagate." In the June quarter, WD reported its retail business declined 13.4 per cent year-on-year and 6.4 per cent sequentially. This compares to Seagate's retail business being 16.0 per cent up year-on-year and 9.4 per cent sequentially. If WD is going to overtake Seagate in drive shipment terms, it probably needs to fix this retail under-performance.
Looking ahead to the next quarter, WD expects to see revenues of $1.9bn-$2.0bn. ®