What happened
Shares of Western Digital (WDC +0.60%) slumped on Friday after the hard drive and flash memory manufacturer reported its fiscal third-quarter results. The numbers were mixed relative to analyst expectations, and guidance was in line with estimates. However, a surprise dividend suspension may be weighing on investors' minds. Western Digital stock was down about 12.3% at 1:25 p.m. EDT.
So what
Western Digital reported third-quarter revenue of $4.18 billion, up 14% year over year and $20 million higher than the average analyst estimate. Non-GAAP (adjusted) earnings per share came in at $0.85, short of expectations by $0.07.
Image source: Western Digital.
The strongest growth came from the data center devices and solutions end market, which saw revenue grow by 22%. Revenue from client devices jumped 13%, while revenue from client solutions rose 2%. The company saw strong demand for notebook solutions due to the shift to working from home, but retail store closures are creating a headwind.
For the fiscal fourth quarter, Western Digital expects revenue between $4.25 billion and $4.45 billion, and adjusted EPS between $1 and $1.40. Despite that solid outlook, the company suspended its dividend to "strengthen our reinvestment in growth and innovation and to support our ongoing deleveraging efforts."
Now what
While Western Digital is seeing strong demand in the data center market and in the notebook portion of the PC market, a severe U.S. recession could wreak havoc on the company's results over the next few quarters. Demand for PCs will almost certainly slump once the work-from-home boom subsides, and data center spending could eventually contract along with the economy.
For now, Western Digital's results are holding up just fine. But the company probably wouldn't be suspending its dividend if it didn't see tough times coming.
