WDC - Western Digital falls after Q2 miss Barclays says fundamentals 'not compelling'

Western Digital ( WDC ) fell nearly 5% in premarket trading on Wednesday after the storage company posted weaker-than-expected results, prompting investment firm Barclays to say its fundamentals are "not compelling."

Analyst Tom O'Malley, who has an equal-weight rating on Western Digital ( WDC ), noted that Western Digital's decision to cut wafer starts by 30% in January is a start to rationalization, but demand growth is likely to continue to move lower.

Additionally, the company's decision to add hedge fund Elliott Investment Management and private equity firm Apollo to its board and sell them $900M in preferred stock may not be enough to right the ship.

"In all, it’s extremely difficult to make a compelling fundamental case with the cash concerns in the near term, and we would rather not be involved for the Kioxia deal given our concerns on China approval," O'Malley wrote in a note to clients. "We remain on the sidelines and prefer the more pure play [data center] recovery name [Seagate Technologies]."

Seagate ( NASDAQ: STX ), which competes with Western Digital ( WDC ), fell fractionally to $67.27 in premarket trading.

In addition to the weak second-quarter , Western Digital ( WDC ) said it expects third-quarter revenue to be between $2.6B and $2.8B. It expects to lose between $1.70 and $1.40 per share during the period, excluding one-time items, including underutilization charges in flash and HDD totaling $250M.

Analysts were expecting $3.12B in revenue and an adjusted loss of 32 cents per share.

Last month, Goldman Sachs named Western Digital ( WDC ) as one of the top 50 stocks to benefit from China's reopening .

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