Financial Performance and Market Analysis of Western Digital Corporation and its Competitors

Financial and market performance highlights how an entity is operating, and extent to which its financial objectives has been accomplished (Gartenberg, Prat and Serafeim 2019). Hence, this report aims to evaluate the market performance of Western Digital Corporation and its competitors by using Dupont analysis and other significant ratios.

Western Digital Corporation is the world’s leading provider of the solutions for digital content use, storage management, collection, and protection. This company deals in the products, such as networking products, home entertainment, solid-state drivers, and hard drives (Materials.proxyvote.com. 2021). Further, its competitor- Seagate technology is also engaged in the business of data storage solutions to create, preserve, and share the digital content (Cloudfront.net. 2021). Both WDC and Seagate Tech are fierce rivals in the market of hard disk drive, where both these entities are leaders. Lastly, the next competitor of WDC- Intel Corporation is engaged in the designing, manufacturing, and sale of the digital products and technologies. All are American-based companies (Intc.com. 2021).

Financial Performance Analysis of Western Digital Corporation

DuPont analysis is referred as the framework that is used to gather valuable information regarding the capital structure of the entity, and the factors that contribute to the breakdown of its return on equity. In case of Western Digital Corporation, it can be seen that the entity’s net profit margin has been highly reduced over the years 2016 to 2020. The decline of profit margin of WDC was mainly because of the reduced average selling price per GB for the flash-based products and reduced HDD products’ sales, and because of the covid-19 pandemic’s impact. The cost of the company has highly been increased. In comparison to which the profit margin of its competitors increased from 2016 to 2019, but reduced in the year 2020, but the profit margin of Intel Corporation is better compared to the two companies (Intc.com. 2021).

The total asset turnover of WDC indicates that the turnover increased from 2016 to 2018, but reduced after 2018. It shows that the company’s assets are not utilized in the way that helps in generating maximum sales. It implies that the company may be using some obsolete assets, which is not performing well. The total asset turnover of other two competitors have also reduced, but Seagate technology’s turnover is better than the two companies (Cloudfront.net. 2021).

Lastly, the financial leverage of WDC indicates that the entity’s financial leverage has been reduced from 2016-2020, which implies that the ROE will also reduce. However, still the debt level of the company is quite high. High debt in the capital structure of the entity results in the higher returns on the equity, but may also negatively impact on its liquidity, limits its operation. The competitors’ financial leverage has reduced their use of financial leverage (Rogova 2014).

Discussion

The resulting ROE of WDC and its competitors increased from 2016 to 2018, but reduced from 2018 to 2020. The average of ROE over the past five years of WDC is 1%, Seagate is 58%, and Intel is 22%. The ROE position of the competitors is stronger compared to WDC. The figure 2 also indicates that the return to the stockholders have been reduced over the years compared to the two different index i.e., Dow Jones US Technology Hardware & Equipment Index and S&P 500 Index. This is an alarming situation for the company, since the efficiency of WDC in generating profit by using the shareholders’ fund is quite low (Shahnia and Endri 2020).

The ability of WDC to earn profit on each outstanding share of the stock is has increased from 2016 to 2018, but reduced from 2018 to 2020, because the company has suffered losses from 2018 to 2020 (Investor.wdc.com. 2017). On the other hand, the competitors are quite high. The average of EPS over the past five years of WDC is 25%, Seagate is 370%, and Intel is 3 to 71%. The position of the competitors is stronger compared to WDC.

The price to sales ratio of WDC indicates that the willingness of the investors to pay each dollar of sales for the stock has been increased from 2016 to 2017, but reduced from 2017 to 2020, because the company’s sales and profit was highly impacted during the years, resulting in the reduced willingness to purchase the company’s shares (Investor.wdc.com. 2019). In comparison to which the price to sales ratio is quite high. The average of price to sales ratio over the past five years of WDC is 101%, Seagate is 114%, and Intel is 328%. The position of the competitors is stronger compared to WDC.

The market to book ratio of WDC indicates that the market value of the company against its book value has been increased from 2016 to 2017, but highly reduced from 2017 to 2020. The average of market to book ratio over the past five years of WDC is 163%, Seagate is 727%, and Intel is 305%. This indicates that WDC is less valued compared to its competitors. The market perception of the value of WDC is quite less because of reduced performance and position of the company (Farooq, Hasan and Muddassir 2015).

Despite the reduced profitability and position, it is expected that WDC will have good growth in the coming years. The goal of WDC is to expand the market share to 20 percent of the SSD market, which is currently 17 percent. In 2016, WDC has acquired SanDisk, which is expected to give it an edge over its competitors in terms of the overall market share, and also it is expected that the release of the new gaming consoles will boost the revenue of the entity. Also, it is offering diversified portfolio that includes the products, such as SSD, HDD, and NAND. The company may offer its investors a better value for its investors in the coming years (Khatri 2020).

Conclusion

Therefore, it can be concluded that the financial performance and position of WDC has significantly been reduced over the years. It is not able to generate sufficient returns from the shareholders’ fund compared to its leading competitors because of decline in the sales and covid-19 impact. However, despite performing low in the past few years, it is expected that in the coming years, the company’s value will increase because of the likely increase in the revenue and market share.

References

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<https://www.intc.com/filings-reports/annual-reports/content/0000050863-21-000010/0000050863-21-000010.pdf> [Accessed 21 January 2022].

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<https://investor.wdc.com/static-files/b5fe76c8-cf13-4e00-86a2-e266ba897ecd> [Accessed 21 January 2022].

Khatri, A., 2020. Storage Wars: Where Does Western Digital Stack Up Against Its Rivals?. [online] Nasdaq. Available at:

<https://www.nasdaq.com/articles/storage-wars%3A-where-does-western-digital-stack-up-against-its-rivals-2020-02-11>[Accessed 22 January 2022].

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Rogova, E., 2014, May. Dupont analysis of the efficiency and investment appeal of russian oil-extracting companies. In 8th International Scientific Conference “Business and Management.

Shahnia, C. and Endri, E., 2020. Dupont Analysis for the financial performance of trading, service & investment companies in Indonesia. International Journal of Innovative Science and Research Technology, 5(4), pp.193-211.

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