Western Digital Posts Q1 Loss Amid Cloud Demand Slump; Plans Production Cutback

Western Digital Corp, the renowned memory chipmaker, faces a troubling first quarter, projecting larger-than-expected losses and underperforming revenue. This downturn, primarily attributed to weak cloud business demand, prompts a consequential reduction in production.

To account for the underutilization of its factories, an estimated charge of $200 million to $220 million will be included in the current-quarter loss, causing a 2% drop in the company's shares during extended trading.

According to Western Digital's finance chief, Wissam Jabre, it may take a few more quarters for cloud companies to clear out excessive inventory. In the quarter ended June 30, cloud revenue experienced a significant decline of 53%, amounting to $994 million. CEO David Goeckeler explains that large cloud service providers have been experiencing a severe inventory digestion phase, resulting in a temporary pause on purchases.

Western Digital anticipates an adjusted loss per share ranging from $2.10 to $1.80 for the forecasted period, compared to the estimated loss of $1.40 per share. Additionally, the company's revenue projection for the same period falls below estimates. In line with recent trends, Seagate Technology, Western Digital's rival, also predicts downbeat revenue for its first quarter due to a weakened Chinese market and reduced tech spending.

The decision to cut production, a measure taken by memory chipmakers amid slumping demand during the first half of this year, indicates an attempt to address the supply glut in the industry. While this action has led to significant writedowns in unsold stockpiles and impacted profits, it has played a role in stabilizing the market.

Western Digital has stated that it will significantly reduce its capital expenditure in the fiscal year 2024. CEO Goeckeler highlights that the company's two largest end markets, client and consumer, are experiencing growth, inventories are returning to normal levels, content per unit is increasing, and price declines are moderating. Similar sentiments have been expressed by industry giants such as Samsung Electronics and SK Hynix, suggesting that the industry is slowly recovering from its worst phase.

Photo: Western Digital Newsroom