Western Digital stock rallies as it opts for a flash spin-out
Published: 09:58 30 Oct 2023 EDT
Western Digital Corp (NYSE:WDC) shares started Monday strongly as quarterly financials exceeded market forecasts and the memory maker told investors it intends to split off and spin out its flash memory business.
The Western Digital brand will retain its core hard drive business while shares in a new vehicle holding the flash business will be issued to shareholders.
It follows activist shareholder pressure, from Elliot Partners which last year built a stake and triggered a review, and, more recently, a proposed deal with Japan’s Kioxia which has since stalled.
“Our HDD and Flash businesses are both well positioned to capitalize on the data storage industry’s significant market dynamics, and as separate companies, each will have the strategic focus and resources to pursue opportunities in their respective markets,” chief executive David Goeckeler said in a statement.
“Importantly, separating these franchises will unlock significant value for Western Digital shareholders, allowing them to participate in the upside of two industry leaders with distinct growth and investment profiles.”
Goeckeler: “We thoroughly evaluated strategic transactions that could be value-accretive to Western Digital.
“However, given current constraints, it has become clearer to the Board in recent weeks, that delivering a stand-alone separation is the right next step in the evolution of Western Digital and puts the company in the best position to unlock value for our shareholders.”
In terms of financial results, Western Digital reported $2.75 billion in revenue for its first quarter with an earnings-per-share loss of $1.76 – beating Wall Street forecasts of $2.66 billion and a $1.91 loss.
The storage firm’s cloud revenue fell by 12% year-on-year, while consumer and client enterprise division gained 14% and 11% respectively.
Western Digital penciled in second-quarter revenue guidance in a range between $2.85 billion and $3.05 billion, whilst it said it expects to report a quarterly loss of $1.35 to $1.05 per share.
In a separate earnings statement, Goeckeler added: “Our Consumer and Client end markets continue to perform well and we now expect our Cloud end market to grow going forward.
“Our improved cost structure positions Western Digital to capitalize on enhanced earnings power as market conditions continue to improve.”
In New York, Western Digital stock was up $4.03 or 10.34% trading at $43.00.
