Western Digital stock slips on another weak forecast, analysts blame NAND weakness

© Reuters.

By Senad Karaahmetovic

Western Digital Corporation (NASDAQ:WDC) shares are down about 4.5% in pre-open Wednesday after the company reported worse-than-expected FQ2 results and offered a soft forecast for this quarter.

Western reported a loss per share of $0.42 on revenue of $3.11 billion, which compares to the expected loss per share of $0.14 on sales of $2.99B. The adjusted gross margin was 17.4%, below the estimate of 20.9%.

For this quarter, Western expects to post a loss per share in the region of $1.70 - $1.40 on revenue of $2.6B - $2.8B. Analysts were looking for a loss per share of $0.32 on revenue of $3.12B.

Moreover, the memory maker announced it sold $900M in convertible preferred stock to Apollo Global Management (NYSE:APO) and Elliott Investment Management. The initial conversion price that was agreed to is $47.75. Moreover, both companies were granted board seats.

"We see substantial opportunity and value creation ahead for Western Digital and are excited to make this investment, which enables Western Digital to continue executing on its innovation-led strategy and producing market-leading products for its customers. We look forward to working with David and the Board as they position the company for long-term success," Apollo Global Management said.

Goldman Sachs analysts said Western delivered “much needed NAND supply-side cuts.” Still, the near-term business outlook “remains challenged.”

“While we appreciate the actions taken by management to improve the company’s liquidity position (i.e. issuing ~$900mn in preferred convertible equity, reducing inventory), we maintain our cautious investment thesis on WDC as we expect macro headwinds — particularly those in the Consumer and Client end-markets — to weigh on near-term margins, EPS, and FCF,” they said in a note.

UBS analysts added that Western continues to be negatively impacted by NAND weakness.

“Our thesis on WDC remains unchanged such that absent the scenario where WDC figures out how to somehow consolidate the JV with Kioxia, we continue to dislike its NAND business which tends to weigh down on the profitability of the overall business,” they wrote in a client note.