Deutsche Bank cuts estimates on Western Digital, Seagate, citing risk of cloud weakness
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Western Digital (WDC) and Seagate Technology (NASDAQ:STX) shares rose on Friday even as investment firm Deutsche Bank cut earnings estimates and noted recent weakness could spill over to impact cloud and enterprise spending.
Analyst Sidney Ho, who has a buy rating on Western Digital (WDC) and a hold rating on Seagate Technology (STX), lowered estimates on both companies, noting that recent issues highlighted by Micron Technology (MU) are likely to impact both companies.
"On the flash business, we expect the issues recently highlighted by MU (i.e., weak PC/smartphone demand and inventory adjustments at enterprise OEMs) to also impact [Western Digital] considering ~85% of [Western Digital's] flash business is currently tied to the client and consumer segments," Ho wrote in a note to clients.
The analyst lowered 2022 and 2023 earnings per share estimates on Western Digital (WDC) to $6.60 and $7.75, down from $8 and $9, respectively.
In addition, he also lowered 2022 and 2023 earnings per share estimates on Seagate Technology (STX) to $8.29 and $9.40, down from $8.65 and $9.60, respectively.
Western Digital (WDC) shares rose 0.6% in premarket trading, while Seagate Technology (STX) shares were little changed.
Ho added that although the hard disk drive business is still seeing "healthy" demand from the cloud, there have been "anecdotal signs" that enterprise IT spending could slow in the next few quarters.
Regarding Seagate (STX), Ho said the firm is "most interested" in how it guides 2023 revenue growth, which Deutsche Bank expects to be flat year-over-year.
Last month, Morgan Stanley listed Western Digital (WDC) as one of the companies with the most revenue exposure to China.