Western Digital(WDC) - 2023 Q3 - Quarterly Report

Financial Performance - Revenue for Q3 2023 decreased by 36% to $2.803 billion compared to$4.381 billion in Q3 2022[182] - Gross profit declined by 76% to $286 million, with a gross margin of 10.2$472 million in Q3 2023, compared to an operating income of $324 million in Q3 2022[182] - Net loss attributable to common shareholders was$581 million in Q3 2023, a significant decline from a net income of $25 million in Q3 2022[182] - Consolidated net revenue decreased by$4.619 billion (32%) for the nine months ended March 31, 2023 compared to the prior year, driven by a 36% decline in Flash revenue and a 28% decline in HDD revenue[183][188] - Flash revenue decreased 42% and 36% for the three and nine months ended March 31, 2023, respectively, primarily due to a decline in average selling prices per gigabyte[188] - HDD revenue decreased 30% and 28% for the three and nine months ended March 31, 2023, respectively, primarily due to a 23% and 22% decline in exabytes shipped[188] - Cloud revenue decreased 32% for the nine months ended March 31, 2023, driven by reduced customer purchases to right-size inventories and lower flash-based product pricing[189] - Client revenue decreased 39% for the nine months ended March 31, 2023, driven by pricing pressure across Flash and declines in client SSD and HDD shipments for PC applications[189] - Consumer revenue decreased 28% for the nine months ended March 31, 2023, primarily due to a decrease in average selling price per gigabyte in Flash and lower retail HDD shipments[189] - Consolidated gross profit decreased by $2.63 billion for the nine months ended March 31, 2023, with gross margin declining 12.4 percentage points, primarily driven by lower Flash average selling prices[195] - Flash gross margin decreased by 23.5 percentage points year-over-year, substantially driven by lower average selling prices per gigabyte[195] - HDD gross margin decreased by 4.9 percentage points year-over-year, with approximately 3 percentage points due to manufacturing underutilization charges[195] - Income before taxes was a loss of$529 million for the three months and $830 million for the nine months ended March 31, 2023, compared to gains of$262 million and $1.612 billion in the prior year periods[202] - Effective tax rate was -8$40 million in employee termination, asset impairment, and other charges in Q3 2023[182] - Research and development expense decreased 174 million for the nine months ended March 31, 2023, primarily due to reductions in variable compensation expenses and material use[196] - SG&A expenses decreased by 39 million for the three months and $112 million for the nine months ended March 31, 2023, driven by reductions in headcount, variable compensation, and material use[197] - Employee termination, asset impairment, and other charges increased by$36 million for the three months and $116 million for the nine months ended March 31, 2023, due to restructuring actions[197] - Net interest and other expense decreased by$5 million for the three months and $22 million for the nine months ended March 31, 2023, reflecting higher interest income and lower interest expense[199] Cash Flow and Capital Expenditures - Net cash used in operating activities was$340 million for the nine months ended March 31, 2023, compared to $1.585 billion provided in the prior year period[206] - Capital expenditures for 2023 are expected to be$2.2 billion, with net cash used for property, plant, and equipment expected to be $800 million[208] - Cash and cash equivalents held by foreign subsidiaries totaled$1.86 billion as of March 31, 2023, with no material tax consequences on repatriation[210] - Cash conversion cycle increased to 139 days for the three months ended March 31, 2023, from 90 days in the prior year period, driven by increases in DSO and DIO[212] - Net cash provided by financing activities was $856 million for the nine months ended March 31, 2023, primarily from the issuance of Series A Preferred Stock[215] Debt and Financial Obligations - Total long-term debt, including current portion, is$7.1 billion, with $4.738 billion due in 2026-2027 and$999 million beyond 2027[220] - Interest on debt totals $1.18 billion, with$629 million due in 2024-2025 and $401 million in 2026-2027[220] - Flash Ventures related commitments amount to$4.616 billion, with $2.48 billion due in 2024-2025 and$1.041 billion in 2026-2027[220] - Mandatory Deemed Repatriation Tax liability is $661 million, with$257 million due in 2026[224] - Unrecognized tax benefits liability is $1.02 billion, with$280 million in accrued interest and penalties[225] - The company expects to pay $620-650 million in tax and interest for years 2008-2012 and$100-110 million for years 2013-2015[226] - The company has $2.25 billion available for borrowing under its revolving credit facility until January 2027[220] - The outstanding balance on the company's Term Loan A-2 is$2.7 billion, and a 1% increase in the variable rate would increase annual interest expense by $27 million[239] Strategic Initiatives and Business Review - Western Digital's BiCS6-based products achieved cost crossover in Q3 2023, and the company announced the next-generation BiCS8 node[176] - The company is reviewing strategic alternatives, including the potential separation of its Flash and HDD business units[174] - Western Digital amended its loan agreement in December 2022 to provide additional financial flexibility, with cash and cash equivalents plus available unused capacity exceeding$1 billion as of March 31, 2023[178] - The company issued 900,000 shares of Series A Preferred Stock for $900 million on January 31, 2023[179] - The company has authorized a stock repurchase program of up to$5.0 billion, with $4.5 billion remaining available as of March 31, 2023[232] - The company issued 900,000 shares of Series A Preferred Stock for$900 million, entitled to cumulative preferred dividends[221] - The company has a stock repurchase program authorized for up to $5.0 billion, with$4.5 billion remaining as of March 31, 2023[232] Risk Factors and Contingencies - A network security incident in March 2023 resulted in disruptions to business operations, but the financial impact is not expected to be material[170][171] - A 10% adverse movement in foreign currency exchange rates would result in a foreign exchange fair value loss of $294 million[238] - A hypothetical 10$294 million at March 31, 2023[238]