Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Western Digital Corporation Slid Nearly 12% Last Month

By Chris Neiger - Dec 12, 2017 at 5:16PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company's shares took a hit after Morgan Stanley downgraded the stock.

What happened

Shares of Western Digital Corporation (WDC -1.76%) tumbled 11.7%in November, according to data provided by S&P Global Market Intelligence, after Morgan Stanley analyst Katy Huberty downgraded the company's stock on the expectation that NAND flash memory prices will fall. 

So what

Huberty wrote in an investor note that she believes NAND memory prices will fall by 7% to 15% each quarter, starting in the calendar first-quarter 2018, which is clearly unwelcome news for Western Digital's NAND business. 

A finger pointing at a stock chart moving down.

Image source: Getty Images.

It's worth remembering, though, that flash memory, like many other chips and semiconductors, is a cyclical business, and NAND prices have been going up for a while. Sooner or later those prices had to start sliding back down, and when that happens the share prices of companies making those products typically suffers.

Additionally, the calendar first quarter is typically slow for chip companies, so the news came at a particularly bad time. 

Now what

Western Digital's COO, Michael Cordano, referenced the possibility of sliding NAND prices on the company's fiscal first-quarter 2018 earnings call back in October. At the time he said they were already causing the company's average selling prices (ASPs) to be flat, noting "I think we talked about last quarter that ASPs had flattened. That was our expectation coming into this quarter, and that's really our expectation as we sit today. So we don't see continued movement in a substantial way up, but it's being sustained at this -- at the current level."

In short, NAND prices were already causing the company's ASPs to be flat. The problem is that if the prices do indeed start falling as much as Huberty expects, then that flatness could translate into a real slide. Investors will have to keep a close eye on the next few quarters to see if that does indeed play out, and know that it's likely just a small part of larger cyclical chip price dip.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Western Digital Corporation Stock Quote
Western Digital Corporation
$46.74 (-1.76%) $0.84
Morgan Stanley Stock Quote
Morgan Stanley
$78.16 (0.93%) $0.72

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.