Despite posting strong fiscal first-quarter results, data storage giant Western Digital Corp. saw its shares lose more than 10% of their value in extended trading today after issuing softer earnings guidance.

The company reported a profit before certain costs such as stock compensation of $2.49 per share on revenue of $5.1 billion, up 29% from the same period a year ago. That beat forecasts, with analysts modeling an adjusted profit of just $2.24 per share on revenue of $5.1 billion.

Western Digital Chief Executive David Goeckeler (pictured) said the “solid results” in the quarter were driven by strong demand across diverse end markets combined with its “strong innovation, broad routes to market and sharpened execution.” The company was able to do so even in the face of “significant COVID impacts and supply chain disruptions,” he added.

“While these disruptions are transitory, the long-term opportunities for Western Digital remain unchanged as the world’s digital transformation continues to accelerate,” Goeckeler continued. “We believe that the migration to the cloud and demand for storage solutions throughout the client and consumer markets will continue to drive a huge opportunity for Western Digital and our customers.”

Western Digital is one of the world’s biggest makers of storage drives, supplying hard disk drives and flash memory chips for data center hardware, personal computers, smart cars and a wide range of other systems.

The quarterly report was the first Western Digital has made under its new reporting structure. It now groups product revenues into three categories – Cloud, Client and Consumer. The Cloud segment includes products made for public and private cloud computing environments, while Client refers to those sold directly to OEMs or via distribution partners. The Consumer segment covers retail and end-user products.

The Cloud segment dominated, pulling in 44% of Western Digital’s overall revenue at more than $2.2 billion and growing 72% from a year ago. The company said this was the result of record-breaking capacity enterprise hard drive revenue and almost 30% sequential growth in enterprise solid-state drive sales.

Goeckeler said the Cloud segment will be boosted in the next quarter by sales of a new product called OptiNAND, which is a storage technology that uses flash memory in the hard disk drive control plane to increase areal density. The company said it will begin volume shipments of its 20-terabyte CMR hard drives using OptiNAND next month.

Client revenue chipped in with $1.85 billion in revenue, up 6%, while Consumer added $973 million, up 10%.

Western Digital said that within the Client segment, flash revenue saw strong growth in areas such as mobile, gaming, automotive, the “internet of things” and industrial applications.

Client and Consumer revenues did however decline sequentially, by 2% and 6% respectively, because of “supply disruptions at our customers and within the company’s own operations.”

Analyst Holger Mueller of Constellation Research Inc. said Western Digital’s strong quarter was due as much to its excellent cost controls as its 30% revenue growth.

“Good things happen when you grow and control the cost side, and this is what Western Digital did, swinging from a small loss to a healthy profit, ” he said. “It is good to see that the cloud offerings were a major driver, it means half of Western Digital’s revenue this full year will likely come from cloud. Of course,  Western Digital – like all manufacturers – still needs to navigate the supply chain challenges successfully to keep the momentum.”

Speculation continues to persist over Western Digital’s on-again, off-again efforts to buy Japanese flash memory manufacturer Kioxia Holdings Corp. In August, reports emerged that Western Digital was yet again in talks to buy Kioxia, a former Toshiba Corp. subsidiary that went independent in 2018, for more than $20 billion.

Western Digital already enjoys a close relationship with Kioxia, using its flash products in a number of storage devices it makes. It was said at the time that a merger would help the companies scale up to compete more effectively against larger rivals such as Micron Technology Inc. and Samsung Electronics Co. Ltd.

The reports said the deal could conclude before September, but so far nothing has been finalized. Negotiations, if they remain ongoing, are likely to be protracted, as the first reports of Western Digital’s interest in Kioxia actually date back to March.

In the meantime, Western Digital said it will continue to press ahead. For the second quarter, it’s expecting an adjusted profit of between $1.95 and $2.25 per share on revenue of $4.7 billion to $4.9 billion. That compares with Wall Street’s forecast of $2.39 per share on revenue of $4.59 billion.

Photo: Western Digital