Poor revenue guidance sends shares of Western Digital and Supermicro down

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Shares of Western Digital Corp. and Super Micro Computer Inc. were trending down today in extended trading after the companies both offered revenue guidance that came in below expectations.

In the case of Western Digital, which sells hard drives and flash storage used in computers, smartphones and other devices, its forecast came in much lower than expected, with officials saying they see third quarter sales of between $2.6 billion and $2.8 billion. Wall Street had earlier forecast revenue of $4.76 billion.

The forecast came in the wake of disappointing second quarter results that saw Western Digital report a net loss of $446 million for the period. The company delivered a loss before certain costs such as stock compensation of 42 cents per share, well short of the consensus estimate of an 8 cent loss. Revenue came to $3.11 billion, down 17% but ahead of Wall Street’s target of $3.01 billion.

Supermicro, a supplier of computer servers, did a bit better, reporting second quarter earnings before certain costs of $3.26 per share, beating the $3.03 estimate. Its revenue came to $1.8 billion, up from $1.17 billion a year earlier and just ahead of Wall Street’s forecast of $1.78 billion.

However, its forecast was disappointing, with Supermicro saying it sees earnings of between $1.88 and $2.14 per share, the midpoint of which came in below the analyst’s estimate of $2.12. In terms of revenue, Supermicro is forecasting a range of $1.42 billion to $1.52 billion, some way off the $1.6 billion forecast.

Western Digital’s stock fell more than 6% in extended trading, while Supermicro’s was down almost 4%.

The situation at Western Digital looks especially bleak, but the company was boosted today by news that it will receive $900 million through a convertible preferred stock deal from the private equity firm Apollo Global Management and the activist investor Elliott Management Corp. According to the storage firm, the preferred stock has a conversion price of $47.75 per share, a premium of around 9% on its closing price of $43.95.

The deal comes after Western Digital launched a review of strategic alternatives last year, following Elliott’s move to take a $1 billion stake in the company. One of the options it’s considering is to split off its flash-memory and hard drive businesses. According to Western Digital Chief Executive David Goeckeler (pictured), the preferred stock sale will help to facilitate the next stages of its strategic review.

“We look forward to working together in advancing our goal of creating value and finalizing the best possible strategic outcome for our shareholders,” the CEO said.

Another option for Western Digital could be a merger with the Japanese storage giant Kioxia Holdings Corp. Rumors of a potential merger between the two companies have been circulating for almost two years, but Reuters cites anonymous sources as saying that the talks are still active.