Another Analyst Goes Cautious On Western Digital As Market Demand Worsens

  • Rosenblatt analyst Kevin Cassidy maintained Western Digital Corp WDC with a Neutral and lowered the price target from $45 to $35.
  • Following WDC management's numerous appearances at recent technology conferences, he cut his current quarter and out quarter estimates for Western Digital, which he did not consider surprising. 
  • Management has clarified that market demand, particularly for NAND Flash, has worsened since the company gave its guidance on August 5.
  • Management is prudently slowing capacity increases by pushing out the NAND Flash technology transition and slowing the start-up of Fab 7. 
  • The plan is to align output with the lower demand.
  • RelatedWestern Digital Shares Drop On Dismal Q1 Outlook; Beats Q4 Aided By Mixed Segment Performance
  • Due to increased weakness in the broad market, expectations are for the September quarter to be lower than the original guidance. 
  • Free cash flow will likely be negative for the 1Q23 and FY23.
  • As management remains on track to reduce NAND Flash costs, he expects that the ASP declines this quarter and next are above the cost declines.
  • Specifically, Cloud customers became increasingly cautious while China's weakness lingers.
  • A week ago, Benchmark analyst Mark Miller reiterated a Sell on WDC and a $34 price target citing concerns over the strength and duration of the down cycle and weakening hyperscale.
  • Consistent with Seagate Technology Holdings PLC's STX view, hyperscale customers became more cautious. 
  • Miller found Western Digital in a much stronger position to face a down cycle than the last, thanks to lower debt, greater access to capital, and a better mix. 
  • Price Action: WDC shares traded lower by 2.4% at $36.87 on the last check Friday.
  • Photo Via Wikimedia Commons
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