Work-from-home shift trickles down to Western Digital as cloud builders stuff storage in bit barns to meet demand

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Western Digital ended the year on a relative high as the work-from-home trend across much of the world led to a buying frenzy from cloud builders expanding their data centres to feed demand.

Revenues for the Q4 ended 3 July climbed 18 per cent year-on-year to $4.287bn; client devices was up 19 per cent to $1.9bn; data centre devices and solutions was up a whopping 32 per cent to $1.68bn; and client solutions was down 9 per cent to $687m.

Pre-tax profit was $185m versus a loss of $474m in Q4 2019, and net profit of $148m compared to a loss of $197m. This is the first meaningful profit haul WD has achieved in this financial year, and it came right at the end.

With a first full quarter under his belt, new CEO David Goeckeler told analysts on an earnings call there was "limited impact from the pandemic" but that demand was "mixed".

"If there's a common theme among our end markets, it's uncertainty. In the second half of fiscal 2020, customers were focused on ensuring they had enough supply to meet heightened demand. As expected, demand in our cloud business was strong, due to the work-from-home trend."

Unsurprisingly, given the boom, flash-based notebook storage fuelled OEM business. On the flip side, notebook and desktop hard drive sales were down. Smart video was also weaker than expected, WD noted.

In gaming, WD started to ship its flash drives for next-generation consoles. Mobile flash was up marginally up on the year-ago period but down sequentially.

WD's distribution network of 350,000 "points of purchase" were "impacted by COVID-related lockdowns at many of our bricks-and-mortar customers", said Goeckeler, a former Cisco exec who confirmed he was jumping ship to WD in March.

In terms of product categories, flash was up 49 per cent year-on-year to $2.2bn, and hard drive revenue slipped 4 per cent to $2.1bn. Total exabyte shipments were down 2 per cent.

WD has important product ramps this quarter, including its 18TB drive, where it aims to produce a million units over the three-month period; and it has launched the BiCS5, a 112-layer flash product, in retail.

"While we focus on ramping BiCS5, BiCS4 has continued to provide the right balance of performance and cost reduction," said Goeckeler. "BiCS4 represented over 60 per cent of bits shipped in the quarter."

For the full year, WD turned over $16.73bn, just slightly up on the prior year. It shaved $200m from expenses (lower restructuring charges and selling, general and admin costs). However, given the losses it racked up in the first half of fiscal '20, WD remained in the red and lost $250m for the 12 months. This was a marked improvement on fiscal '19, when it lost $754m due to a slump in sales of client devices, falling prices and a major streamlining of hard drive manufacturing.

Goeckeler warned that "uncertainty remains", adding: "We remain vigilant given the resurgence of the virus and its potential to disrupt our supply chain, including our ability to keep full teams working in our manufacturing facilities."

The "geopolitical developments, which are pertinent to a global business like ours" was another consideration on its radar, he added.

WD said it expects Q1 of fiscal '21 to be between $3.7bn and $3.9bn, down from the $4bn it reported a year earlier. ®

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