Western Digital earnings beat and dividend rises, but shares slip
The storage maker posted 55% revenue growth, raised its dividend and guided above forecasts, yet its stock fell in late trading as the AI selloff weighed on hardware names.
Western Digital earnings cleared every bar on Thursday, Oct. 22, but the stock still fell. The company, which now brands itself WD, reported fiscal first-quarter revenue of $4.38 billion and adjusted earnings of $4.64 a share, against LSEG consensus of $4.14 billion and $4.09, CNBC said. Shares dropped about 6% in extended trading.
What happened
Revenue grew 55% from a year earlier in the quarter ended Oct. 2. Adjusted gross margin widened to 58.1% and adjusted operating margin to 49.1%, lifting adjusted earnings per share 161%, chief executive Irving Tan said in the release. GAAP earnings were $4.63 a share. Operating cash flow was $1.60 billion and free cash flow $1.38 billion.
The board raised the quarterly dividend 17% to $0.175 a share, payable on Dec. 17 to holders of record on Dec. 4.
Guidance was strong too. For the December quarter, WD expects revenue of about $5.1 billion at the midpoint, up 66% to 72% from a year earlier, an adjusted gross margin of 60.5% and adjusted earnings of $5.80 a share. Finance chief Kris Sennesael credited "robust exabyte growth and improved pricing."
Why it matters
The share reaction says more about the market than the company. Seeking Alpha reported that the stock gave up early after-hours gains, and CNBC tied the decline to heavy selling in AI-linked shares during the regular session, when the Nasdaq fell 2.6% and the chip index lost 6.7%. SK Hynix shares fell 8% in U.S. trading the same day, CNBC said.
Western Digital earnings joined a pattern of strong numbers met with selling. Bloom Energy fell 5% after hours despite beating estimates and raising guidance, CNBC reported. Earlier in the week, investors punished Lam Research even after a record outlook, as we covered in our Lam Research guidance report, and hardware names have swung hard since Super Micro's preliminary results.
The after-hours tape was mixed beyond AI names. VeriSign fell almost 5% after missing estimates, Deckers Outdoor slid about 7% on weaker Hoka and UGG sales and a soft full-year forecast, and Comfort Systems dropped 5% on news its finance chief will retire. RingCentral jumped 14% and Omnicom rose 2% after beating forecasts, CNBC reported.
Storage demand is tied to the data that AI systems create and keep, so WD's numbers are a read on spending by large cloud customers. The release flags revenue concentration in that cloud market and among top customers as a key risk.
What's next
The margin trend is the key number for bulls. Guidance for a 60.5% adjusted gross margin next quarter would be another step up from 58.1%, and the company is lifting cash returns at the same time. Bears will focus on how much of that depends on a few large cloud buyers keeping their AI budgets intact.
Management discussed the outlook on a call after the release, and the full figures are in the company's first-quarter release. The next test for the group is whether Friday trading steadies after Thursday's rout.
If the AI trade calms, Western Digital earnings and guidance give the stock a solid base; if not, even record numbers may not be enough to hold it up in the near term.
This article is for information only and is not investment advice.