Hard-drive manufacturer Western Digital (NYSE:WDC) is about to unleash second-quarter 2007 earnings on us all. Let's put an ear to the platter and listen for clues on the coming presentation.

What analysts say:

  • Buy, sell, or waffle? Twenty-three Wall Street analysts have an official opinion on Western Digital. Thirteen of them have "buy" recommendations, 9 are holding, and the last is a seller. In our Motley Fool CAPS community, it's a three-star stock with 148 player ratings.
  • Revenues. The hungry analysts would be satisfied with $1.37 billion or so. That's right at the top end of management's guidance, and it would be a 22% improvement over the year-ago period.
  • Earnings. The average forecast calls for $0.53 per share, up from $0.47 last year. The company expects to earn $0.50 to $0.54 per share.

What management says:
In the last earnings report, then-CEO Arif Shakeel said that the ongoing streak of great results resulted from a conscious expansion into new markets like consumer electronics and notebooks. The company's traditional hunting grounds have been desktop PCs, which still account for 75% of sales. "As we address multiple growth opportunities in the years ahead, we will continue our emphasis on excellence in operations, including a relentless focus on customer satisfaction and the reliability and quality of our products," Shakeel said.

What management does:
By and large, gross margins are expanding, thanks to manufacturing efficiencies and steady pricing. That improvement filters right down to the bottom line, thanks to the company's tight operations. Management thinks it will continue its steady pace of earnings growth, though earnings are coming up to some tough year-ago comparisons.

Margins

7/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Gross

16.2%

17.1%

18.4%

18.7%

19.1%

18.9%

Operating

5.9%

6.5%

7.7%

8.1%

8.4%

8.6%

Net

5.4%

6.1%

7.1%

7.5%

9.1%

9.3%

FCF/Revenue

19.1%

19.1%

15.3%

16.1%

16.2%

17.7%


Year-Over-Year Growth

7/2005

9/2005

12/2005

3/2006

6/2006

9/2006

Revenue

19.4%

19.4%

21.7%

21.7%

19.3%

20.1%

Earnings

30.8%

30.8%

72.6%

68.6%

101.3%

82.7%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
It looks as through brand-new CEO John Coyne needs to prove his worth to investors, but this isn't his time yet. He took office a couple of days after the end of the quarter under consideration, so this is Shakeel's last hurrah. His own guidance shows cautious optimism.

That's in stark contrast to the lower earnings just reported by Seagate (NYSE:STX), WD's closest competitor. Seagate has traditionally enjoyed stronger margins than Western Digital, but folding Maxtor into its operations has put a crimp on that company's metrics lately. The consolidation in this industry has most likely come to an end now, after removing competitors like Conner, Maxtor, and Quantum from the field over a scant five years or so. That is, unless one of the big boys with a toe in the hard-drive pool wants to dip down deeper, but Fujitsu and Hitachi (NYSE:HIT) have bigger fish to fry.

The market appears to like the smaller field, and Western Digital's shares have nearly doubled in the last two years. But the company still looks cheap at a measly 11 times trailing earnings, while Seagate commands 22 times earnings.

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Fool contributor Anders Bylund holds no position in any of the companies discussed here, and his hard drive is a Hitachi. You can check out Anders' holdings if you like, and we always have Foolish disclosure in store.