Western Digital Conference Call Highlights

Western Digital WDC reported its third quarter earnings. Shares of the company are up 3 percent.

Below are some key highlights and takeaways.

Operations and Quarter Performance:

• We are working with our customers and partners to help extract more and more value from data in an innovative and cost-effective manner across our full spectrum of products.
• I continue to be encouraged by our broad-based strategy, both in terms of our financial results and customer feedback.
• For instance, our Flash Platform Solutions group resumed it's faster than industry growth trajectory, with revenue of $156 million for the September quarter.
• We remain on track to achieve accretive earnings for this business early in calendar 2015.
• Our broad lineup of high-capacity hard drives, based on our proprietary HelioSeal platform, has been very well received by both traditional enterprise and hyperscale data center customers, including the new 8-terabyte and 10-terabyte models announced last month.
• We recently shipped our 1 millionth WD Purple hard drive, architected to address the high-growth space of security surveillance video applications.
• Governments' and other large organizations increasing use of video and digital network cameras is driving a huge need for high-resolution recording.
• Our enterprise customers have responded very positively to our newly announced Active Archive offering from our newly formed Elastic Storage group.

Financials:

• Expected seasonal demand and consistent execution helped us exceed financial expectations in the September quarter.
• Industry shipments were in line with the TAM implied in our guidance provided in July.
• In our business, we saw the anticipated seasonal increase in demand for client and branded products as well as strength in capacity enterprise and continued steady demand in performance enterprise.
• Aggregated channel inventories of Western Digital products remain at the low end of our four to six-week range.
• Our revenue for the September quarter was $3.9 billion.
• This included $156 million in revenue related to our Flash Platforms group, which includes enterprise SSDs.
• As a reminder, we continue to expect that our flash-related revenue growth will outpace the growth rate of the industry.
• We shipped a total of 64.7 million hard drives at an average selling price of $58.
• The quarter-over-quarter increase in overall ASP was driven by business mix consistent with the seasonal improvement in client, branded, and the strength in capacity enterprise.
• Our gross margin was 29.1%. Our non-GAAP gross margin was 30.1%, which was better than our implied guidance due to business mix.
• This excludes $39 million of amortization of intangibles.
• Operating expenses totaled $680 million. Our non-GAAP operating expense was
• $638 million, excluding $42 million of amortization of intangibles, litigation charges, and employee termination cost.
• Our net income totaled $423 million or $1.76 per share.
• Turning to the balance sheet, in our 14-week quarter we generated $827 million in cash from operations, and our free cash flow totaled $667 million.
• Our CapEx totaled $160 million or 4% of revenue.
• We repurchased 2.2 million shares for $223 million.
• We also declared a dividend in the amount of $0.40 per share.
• We closed Q1 with total cash and cash equivalents of $5.2 billion, of which approximately $1.2 billion was held in the U.S.

Guidance:

• Revenue to be in the range of $3.75 billion to $3.85 billion.
• Gross margin to be flat with the December quarter level of 30% excluding the amortization of intangibles;
• R&D and SG&A spending of approximately $600 million, excluding the amortization of intangibles; a tax rate of approximately 8%;
• Share count of approximately 238 million.
• We estimate non-GAAP earnings per share of between $2.00 and $2.10 for the December quarter.