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Leading data storage manufacturer Western Digital (NASDAQ: WDC) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 41.3% year on year to $4.29 billion. On the other hand, next quarter’s revenue guidance of $3.85 billion was less impressive, coming in 3.7% below analysts’ estimates. Its non-GAAP profit of $1.77 per share was 2.7% below analysts’ consensus estimates.

Is now the time to buy Western Digital? Find out in our full research report.

Western Digital (WDC) Q4 CY2024 Highlights:

• Revenue: $4.29 billion vs analyst estimates of $4.26 billion (41.3% year-on-year growth, 0.6% beat)

• Adjusted EPS: $1.77 vs analyst expectations of $1.82 (2.7% miss)

• Adjusted Operating Income: $864 million vs analyst estimates of $892.2 million (20.2% margin, 3.2% miss)

• Revenue Guidance for Q1 CY2025 is $3.85 billion at the midpoint, below analyst estimates of $4.00 billion

• Adjusted EPS guidance for Q1 CY2025 is $1.05 at the midpoint, below analyst estimates of $1.51

• Operating Margin: 19.9%, up from -6.9% in the same quarter last year

• Free Cash Flow was $335 million, up from -$242 million in the same quarter last year

• Inventory Days Outstanding: 112, down from 121 in the previous quarter

• Market Capitalization: $21.73 billion

“As we finalize the separation of our businesses, we are confident that both Western Digital and Sandisk will continue driving innovation and providing compelling storage solutions to customers while delivering long-term shareholder value,” said David Goeckeler, Western Digital CEO.

Company Overview

Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.

Memory Semiconductors

The rapid growth in data generation and the need to support increases in processing power for everything from consumer devices to data center servers are driving the demand for memory chips. From the content delivery networks and edge computing to the cloud, data storage is a key component underpinning the global technology architecture. On top of that, secular growth drivers like machine learning and the boom in media-rich digital content are further accelerating the need for storage. Like all semiconductor segments, memory makers are highly cyclical, driven by supply and demand imbalances and exposure to consumer product cycles.

Sales Growth

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Western Digital struggled to consistently increase demand as its $15.6 billion of sales for the trailing 12 months was close to its revenue five years ago. This fell short of our benchmarks and signals it’s a low quality business. Semiconductors are a cyclical industry, and long-term investors should be prepared for periods of high growth followed by periods of revenue contractions.

We at StockStory place the most emphasis on long-term growth, but within semiconductors, a half-decade historical view may miss new demand cycles or industry trends like AI. Just like its five-year trend, Western Digital’s revenue over the last two years was flat, suggesting it is in a slump.

This quarter, Western Digital reported magnificent year-on-year revenue growth of 41.3%, and its $4.29 billion of revenue beat Wall Street’s estimates by 0.6%. Company management is currently guiding for a 11.4% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 10.2% over the next 12 months, an improvement versus the last two years. This projection is particularly noteworthy for a company of its scale and indicates its newer products and services will fuel better top-line performance.

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Product Demand & Outstanding Inventory

Days Inventory Outstanding (DIO) is an important metric for chipmakers, as it reflects a business’ capital intensity and the cyclical nature of semiconductor supply and demand. In a tight supply environment, inventories tend to be stable, allowing chipmakers to exert pricing power. Steadily increasing DIO can be a warning sign that demand is weak, and if inventories continue to rise, the company may have to downsize production.

This quarter, Western Digital’s DIO came in at 112, which is one day below its five-year average. At the moment, these numbers show no indication of an unusual inventory buildup.

Key Takeaways from Western Digital’s Q4 Results

It was great to see a material improvement in Western Digital’s inventory levels. On the other hand, and its EPS fell short of Wall Street’s estimates. Looking ahead, both its revenue and EPS guidance for next quarter missed significantly. Overall, this was a softer quarter. The stock traded down 3.1% to $60.82 immediately following the results.

Western Digital may have had a tough quarter, but does that actually create an opportunity to invest right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.