Western Digital tops Q1 views, splits into two

Today’s headlines

What’s happening: Shares of Western Digital Corporation gained on Monday, following the release of its first-quarter results.

What happened: The storage maker reported upbeat results for its first quarter and announced plans to split into two companies, which lent support to the stock.

Shares of Western Digital moved lower, however, during the extended trading session after the company made another major announcement.

How were the results: The San Jose, California-based company swung to a loss for its third quarter, but still topped market expectations.

• Revenue fell 26% year-over-year to $2.75 billion but came in higher than the consensus estimates of $2.65 billion. On a sequential basis, the company’s revenues grew by 3%.
• Adjusted loss came in at $1.76 per share, compared to a year-ago profit of 20 cents per share. This was, however, better than Wall Street expectations of $1.90 per share.

Why it matters: Western Digital’s flash memory division has been facing a supply glut in recent quarters, amid lower demand for memory chips, with a decline in purchases of computers for home offices.

Last year, Western Digital had announced it was reviewing alternatives after activist investor Elliott Management advised the company to separate those units.

The company had tried for years to merge with Japanese storage maker Kioxia, but the deal did not go through due to opposition from SK Hynix Inc, an indirect shareholder in Kioxia.

The company said its cloud revenues contracted by 52% year-over-year to $872 million in the latest quarter, while client revenues shrank 7% to $1.15 billion. Consumer revenues grew 8% year-over-year to $731 million. Its non-GAAP gross margins shrank by 2,260 bps to 4.1%.

The company’s board approved a plan to separate its HDD (hard disk drive) and Flash businesses.

Management guided to revenues between $2.85 billion and $3.05 billion for the second quarter, almost in-line with market estimates of $2.92 billion. They guided to an adjusted loss of $1.35 to $1.05 per share, better than market expectations of $1.39 per share.

The company also announced a proposed $1.3 billion convertible notes offering, which sent its stock lower in extended trading.

How shares responded: Western Digital’s shares surged 7.3% to close at $41.80 on Monday but fell around 4.9% in the after-hours trading session. The stock has added around 33% year to date.

What to watch: Markets will watch signs of a rebound in the demand for memory chips, which could provide a boost to the company’s overall results. Investors will also monitor rising competition with leaders like Samsung Electronics, which could weigh on results ahead.

The markets today

European stocks will be in focus today ahead of some major economic reports

Context: European equity markets settled higher on Monday, as investors assessed economic reports from Germany.

Details: Investors monitored several earnings reports on Monday. HSBC’s stock jumped after the bank reported a whopping 235% growth in profits after tax to $6.26 billion in the third quarter. The bank also reported an additional share buyback program of up to $3 billion.

Pearson’s shares gained around 3% on Monday, after the company raised its full-year forecast.

On the economic data front, Germany’s gross domestic product contracted by 0.1% in the third quarter, versus 0.1% growth in the prior three-month period. However, this was better than market expectations of a 0.3% decline.

The STOXX Europe 600 Index gained 0.36% to close at 431.12 on Monday, with most sectors settling in the positive zone. The pan-European index is on track to recording a 4.6% monthly decline due to lacklustre earnings reports.

London’s FTSE 100 rose 0.50% to close at 7,327.39 on Monday, while Germany’s DAX 40 and France’s CAC 40 added 0.20% and 0.44%, respectively.

What to watch: Investors await economic reports on gross domestic product and inflation rate from the Eurozone today. The bloc’s GDP grew 0.50% year-over-year in the second quarter and is expected to expand by 0.1% in the third quarter. Analysts expect the inflation rate to ease to 3.3% year-over-year in October, from 4.3% in September.

Other Markets: US trading indices closed higher on Monday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 1.58%, 1.20% and 1.09%, respectively.

The news shaping the markets

Russia announced plans to ease the investment process for citizens and firms from 25 nations, including China, Brazil, India and Saudi Arabia, which sent the RUB/USD forex pair slightly higher in forex trading this morning.

China’s official NBS manufacturing PMI fell to 49.5 in October, from 50.2 in the previous month, exerting pressure on the CNY/USD forex pair.

The Philippines said producer prices eased 0.2% year-over-year in September, versus a 0.6% increase in the prior month, sending the PHP/USD pair lower in forex trading this morning.

Japan’s retail sales grew 5.8% year-over-year in September, easing from a 7% rise recorded both in July and August and exerting pressure on the JPY/USD forex pair.

South Korea’s industrial production grew 1.8% in September. This being a significant deceleration from the 5.2% growth recorded in the previous month sent the KRW/USD pair lower in forex trading this morning.

What else to watch today

Saudi Arabia’s gross domestic product, value of loans and money supply M3, France’s GDP growth rate, household spending, producer prices and inflation rate, Germany’s retail sales and import prices, Turkey’s balance of trade, tourism revenues and tourist arrivals, Italy’s GDP, consumer price index, and producer price inflation, Spain’s current account, India’s infrastructure output and central government budget value, Brazil’s unemployment rate, Mexico’s GDP growth rate, South Africa’s balance of trade, Canada’s GDP, as well as US employment cost index, Redbook index, Case Shiller home price index, FHFA house price index, Chicago business barometer, CB consumer confidence, Dallas Fed services index and API crude Oil Stocks Change.