Image source: Western Digital.

What: Shares of hard drive manufacturer Western Digital (NASDAQ:WDC) slumped on Friday following the company's fiscal third-quarter report. Western Digital missed analyst estimates on all fronts, and its guidance was well below expectations. At 11:40 a.m. ET, the stock was down about 14.5%.

So what: Western Digital reported quarterly revenue of $2.82 billion, down 20.5% year over year and about $40 million shy of the average analyst estimate. Weak PC sales, enterprise workloads moving to the cloud, and declining prices for solid state drives are all pressuring Western Digital's core business. Western Digital announced last year that it was acquiring flash storage company SanDisk (NASDAQ: SNDK), a move that will diversify the company and lead to cost synergies.

Non-GAAP EPS came in at $1.21, down from $1.87 in the prior-year period and $0.07 below analyst expectations. On a GAAP basis EPS was $0.32, down from $1.63. GAAP gross margin fell to 26.7% compared to 29.1% during the third quarter of last year.

Western Digital expects revenue and earnings to continue to be weak during the fourth quarter. The company expects revenue of $2.6 billion to $2.7 billion, well below analyst expectations of $2.92 billion. Non-GAAP EPS is expected in a range of $1.00 to $1.10, also below analyst expectations of $1.34.

Now what: With demand for hard drives in decline, Western Digital's acquisition of SanDisk makes strategic sense. Western Digital CEO Steve Milligan laid out the company's strategy going forward:

Computer usage continues to shift from PCs to mobile devices and enterprise workloads are moving increasingly to cloud-based architectures. Our strategy to become a broad-based provider of media-agnostic storage solutions anticipates these and other trends. After we complete the acquisition of SanDisk, we will be better positioned to address and capitalize on these changes and opportunities, with the storage industry's broadest set of products, a rich technology portfolio, and an experienced team in both rotating magnetic and non-volatile memory.