WDC - Memory chip makers fall after Western Digital issues weak results guidance

Storage company Western Digital ( WDC ) issued weaker-than-expected results and guidance on Friday, prompting a sell-off in related semiconductor stocks.

Western Digital earned an adjusted $1.78 per share on $4.53B in revenue, compared to estimates of $1.72 per share on $4.57B in sales. The company said revenue related to the cloud increased 5%, but other segments, including client and consumer, both saw sharp downfalls, down 15% and 23% year-over-year, respectively.

Looking ahead, Western Digital ( WDC ) said first-quarter 2023 revenue is likely to be between $3.6B and $3.8B, with adjusted earnings between 35 cents and 65 cents per share, well below estimates of $4.79B in revenue and earnings per share of $1.92 per share.

Western Digital ( WDC ) shares fell more than 7%, while competitor Seagate Technology ( NASDAQ: STX ) saw its shares fall nearly 3%. Memory-related semiconductor stocks such as Micron ( NASDAQ: MU ), Nvidia ( NASDAQ: NVDA ) and Texas Instruments ( TXN ) fell between 1% and 3%.

On its earnings call, Western Digital ( WDC ) said that revenue from flash grew sequentially thanks to an improving product mix and increased flash supply, but outside of the cloud, expectations for demand for the rest of the calendar year have moderated.

Western Digital ( WDC ) said it is still evaluating a number of alternatives for strategic review, including separating its flash and hard-disk drive businesses.

In May, activist investor Elliott Management urged Western Digital ( WDC ) to separate the businesses, saying the combined company could be worth more than $100 per share by the end of 2023 as investors value each component separately.

Western Digital ( WDC ) also noted that the client hard-disk drive market is declining at a faster rate than prior to the pandemic and the company is taking action to restructure its manufacturing operations as a result of the weakness, due in large part to softer consumer spending.

Last month, Japan said Western Digital ( WDC ) and Kioxia Holdings, a spin-off of Toshiba ( OTCPK:TOSBF ), would receive $680M in subsidies to boost production of memory chips .

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