Western Digital’s Q1 forecast disappoints due to weak cloud demand.
Western Digital's Q1 forecast disappoints due to weak cloud demand.
Western Digital Corp Forecasts Bigger-Than-Expected Loss in Q1 as Weak Demand Persists
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July 31 (ANBLE) – Memory chipmaker Western Digital Corp (WDC.O) is anticipating a larger loss than expected in the first quarter, with revenue projections below Wall Street targets. The company cites weak demand, particularly in its cloud-based business, which has prompted production cuts.
The current-quarter loss is expected to incur a charge of approximately $200 million to $220 million for underutilization of factories. Consequently, Western Digital’s shares fell approximately 2% in extended trading following the announcement.
Feeling the Effects of Excess Inventory in the Cloud Industry
In June, Western Digital’s finance chief, Wissam Jabre, stated that it would take a few more quarters for cloud companies to clear out excess inventory. This remark followed the Cloud revenue decline of 53% to $994 million in the quarter ending June 30.
CEO David Goeckeler explained that major cloud service providers were experiencing a severe inventory digestion phase, resulting in a pause in purchases. This decline in demand has impacted Western Digital’s revenue, prompting the company to revise its projected adjusted loss per share to be in the range of $2.10 to $1.80. This is compared to the estimated loss of $1.40 per share.
A Wider Industry Perspective
Western Digital’s rival, Seagate Technology (STX.O), also forecasted downbeat revenue for its first quarter due to weakness in the major market of China and lower tech spending.
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The decision by memory chipmakers to reduce production is an attempt to restore order in an industry plagued by supply gluts. Although this strategy has resulted in substantial writedowns and profit loss from unsold stockpiles, it has ultimately contributed to stabilizing the market.
Western Digital intends to make significant cuts to its capital expenditure in fiscal 2024. CEO David Goeckeler expressed optimism, stating, “Our two largest end-markets, client, and consumer, are returning to growth, inventories are normalizing, content per unit is increasing, and price declines have been moderating.” This sentiment is echoed by giants in the memory-chip industry, including South Korea’s Samsung Electronics (005930.KS) and SK Hynix (000660.KS), who believe that the worst is behind them.
In conclusion, Western Digital Corp’s forecast of a larger loss than anticipated in the first quarter, and revenue below Wall Street targets, is primarily attributed to weak demand in the cloud-based business. Despite these challenges, the company is taking steps to restore order in an industry burdened by excess supply. Western Digital’s CEO remains hopeful of future growth, as evident by the normalization of inventories and increasing content per unit. Although the road to recovery may be challenging, industry leaders believe that the worst is behind them, predicting a more positive outlook moving forward.
