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What's in Store for Western Digital's (WDC) Q1 Earnings?

Western Digital Corp. WDC is scheduled to release fiscal first-quarter 2018 results on Oct 26. Notably, the company has a decent record of earnings surprises with an average positive surprise of 9.55% in the trailing four quarters. Last quarter, the company came up with a positive surprise of 3.53%.

In fiscal fourth-quarter 2017, the company reported non GAAP earnings of $2.93 per share compared with $1.03 reported in the year-ago quarter. Revenues increased 38.5% year over year to $4.84 billion and surpassed the Zacks Consensus Estimate of $4.80 billion. Both the top and bottom line figures were better than the guided range.

Let’s take a look at the factors that are expected to influence the first-quarter 2018 earnings.

Key Growth Drivers

We believe Western Digital will benefit from positive synergies derived from the SanDisk acquisition. The latter’s product portfolio is aiding the company’s expansion in the solid state drive (SSD) market. This is also anticipated to provide Western Digital with a competitive advantage against peers like Seagate Technology STX.

Further, the continuous enhancement of the company’s product suite is a positive. The development of the industry’s first 3D NAND technology with 96 layers of storage capability in June was significant. The company’s growing footprint in the automotive as well as the connected home and industrial categories is a major tailwind.

Notably, the company completed the acquisition of Upthere, an app-based cloud-storage startup during the quarter. The company also entered into a definitive agreement to buy Tegile Systems, a provider of flash-driven storage arrays for database. We believe these acquisitions will help the company in expanding its presence with a wider range of products and solutions.

However, the ongoing legal tussle with Toshiba regarding the memory unit in Japan remains a concern. Nevertheless, strong demand for NAND flash memory chips is anticipated to be a key catalyst.

Guidance & Estimates

For fiscal first-quarter 2018, revenues are expected to be approximately $5.10 billion, which is slightly lower than the Zacks Consensus Estimate of $5.12 billion.

Management expects non-GAAP earnings to be in the range of $3.25–$3.35 per share. The Zacks Consensus Estimate of $3.30 per share is in line with the mid-point of the guided range.

Per the Zacks Consensus Estimate, non-computable unit shipments are anticipated to amount to $16.7 million, while the computable unit shipments are projected to total $19 million.

Zacks Rank and Key Picks

Western Digital currently has a Zacks Rank #3 (Hold).

Better-ranked stocks in the broader technology sector include Applied Materials, Inc. AMAT and NVIDIA Corporation NVDA, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

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