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Technology Stocks : WDC, NAND, NVM, enterprise storage systems, etc.
WDC 79.52+0.8%Jul 13 8:00 PM EDTNews

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From: reddy_s12/28/2017 12:07:38 PM
2 Recommendations

Recommended By
JCnieuwenj
Mesaverde

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Given WDC management guidance for FY 2018 and analysts expectations etc., we have the following information:

HDD revenue roughly: $10,500 mil, EPS contribution: $4.50, Gross Margin: 30%

NAND related revenue: $10,500 mil, EPS contribution: $9.00, Gross Margin: 58%

Blended Gross Margin: 44% and Total EPS: $13.50

If we assume that HDD business EPS contributions remains unchanged for FY 2019 because of the offsetting growth in enterprise drives and decline in PC hard drives and look at the impact of ASP declines and Cost declines under various scenarios assuming 50% bit growth, we get the following EPS table for FY 2019. We can note that even under extreme bear case scenario of 40% ASP decline and only 15% cost reduction, EPS is more than $10/-. This doesn’t include any additional cost savings WDC gets because of synergies and high interest rate debt reduction. Per many analysts, more likely scenarios could be ASP declines of 15 to 20%. Based n company record, cost reduction would be more than 20%, which is their mid-point guidance. EPS under likely scenarios are from $15.30 to $16.95. If the market offers reasonable EPS multiple of 12 to 15, the stock should be worth over $180/-. Even in the extreme bear case of 40% ASP declines, I think it should be worth over $120/-



ASP decline

-40%

-30%

-20%

-15%

-10%

-5%

0%

Cost decline

-15%

$10.16

$12.48

$14.81

$15.98

$17.14

$18.30

$19.47

-20%

$10.64

$12.97

$15.30

$16.46

$17.63

$18.79

$19.96

-25%

$11.13

$13.46

$15.79

$16.95

$18.12

$19.28

$20.44

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