WDC - Western Digital - Company Description
Western Digital Corporation, together with its subsidiaries, develops, manufactures, and sells data storage devices and solutions worldwide. It offers performance hard disk drives (HDDs) that are used in enterprise servers, data analysis, and other enterprise applications; capacity HDDs and drive configurations for use in data storage systems and tiered storage models, as well as for use in storage of data for years; and enterprise solid state drives (SSDs), including NAND-flash SSDs and software solutions that are designed to enhance the performance in various enterprise workload environments. The company also provides InfiniFlash System, a system solution that offers petabyte scalable capacity with performance metrics; higher value data storage platforms and systems; datacenter software and systems; and HDDs and SSDs for desktop PCs, notebook PCs, gaming consoles, set top boxes, security surveillance systems, and other computing devices. In addition, it offers embedded NAND-flash storage products, including custom embedded solutions; and iNAND embedded flash products, such as multi-chip package solutions that combine NAND and mobile dynamic random-access memory in an integrated package for mobile phones, tablets, notebook PCs, and other portable and wearable devices, as well as in automotive and connected home applications, and NAND-flash wafers. Further, it provides HDDs embedded into WD- and HGST-branded external storage products; and NAND-flash products, which include cards, universal serial bus flash drives, and wireless drives. Additionally, the company licenses its technologies. The company sells its products under the HGST, SanDisk, and WD brands to original equipment manufacturers (OEMs), distributors, resellers, cloud infrastructure players, and retailers. It serves storage subsystem suppliers, OEMs, Internet and social media infrastructure players, and PC and Mac OEMs. Company description from FinViz.com.
Hewlett Packard started the conversation saying there was a shortage of memory for computers and servers and the rise in prices would impact earnings in 2017. Micron (MU) confirmed it when they reported earnings on the March 24th saying memory prices had risen an average of 20% because of a shortage and would add to profits for 2017.
Western Digital bought SanDisk last year and they were a primary manufacturer of memory of all types. This means not only will WDC have increased profits from the rising memory prices but their actual cost will be lower on other products like disk drives and solid state drives because they are now manufacturing their own memory.
They reported earnings in January of $2.30 compared to estimates for $2.13. Revenue rose 48% to $4.9 billion and beat estimates for $4.76 billion. Shares spiked to $81.25 on the news.
At the end of March shares spiked on news that Toshiba would sell its flash memory business and that Western Digital could be a major bidder. With a shortage of memory in the market, this would help WDC fill that void and make them a major player in the future. However, on April 7th, Toshiba said it had reduced the active bidder list and WDC was not mentioned. At the beginning of the week Amazon, Apple, Google, Broadcom, Foxconn and Hynix were still in the list but Apple was reported to have dropped out by the end of the week. The Japanese government is expected to reject Foxconn and Hynix on national security concerns.
For Apple, Amazon or Google to be the winner, it would guarantee a cheaper supply of memory for their devices. Bids were said to be in the $18 billion range. Since those three companies have a bottomless checkbook, WDC may have exited the bidding rather than see it skyrocket higher.
Conversely, Silverlake/Broadcom reportedly have bid the highest and Silverlake has a strong relationship with Seagate. If Silverlake was to win and partner with Seagate, they could compete directly with WDC. That is a strong incentive for WDC to bid higher to maintain control of their market share.
WDC said it has increased the capacity of its Surveillance-Class hard drives to 10TB. According to IHS Markit, the growing number of high resolution monitoring cameras is causing a sharp uptick in the amount of storage required to archive the video footage. Some surveillance cameras are now HD and even 4K and that requires a lot of storage for a 24x7x365 bank of networked cameras. The new 10TB drive is optimized for 24x7 video from up to 64 HD cameras at once in security environments. 4K video surveillance cameras are estimated to be 2% of the current market today but expected to be 29% by 2020.
They also announced a new pocket sized SSD drive for portable data so developers and content creators can take their data with them wherever they travel. These are the fastest portable drives with speeds of up to 515 Mbps and come in 256gb, 512gb and 1TB capacities starting at $99. This is an amazing accomplishment and these will be hot products.
WDC is on a roll. They have the right products at the right time and profits are soaring. Because of the memory shortage over the last several months and the 20+% rise in prices, their Q1 earnings could be strong.
Earnings are soon so there is some risk in buying before the event.
Earnings April 27th.
Buy Jan $90 call, currently $8.15, initial stop loss $72.45
Sell short Jan $110 call, currently $2.59, initial stop loss $72.45.
Net debit $5.56.
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