Western Digital’s first-quarter forecast disappoints as weak cloud demand weighs

(Reuters) – Memory chipmaker Western Digital Corp (NASDAQ:) forecast first-quarter revenue below Wall Street targets and a bigger-than-expected loss on Monday as weak demand, particularly for its cloud business, forces it to cut production.

The company said it expects its current-quarter loss to include a charge of about $200 million to $220 million for underutilization of its factories.

Western Digital forecast its adjusted loss per share to be in the range of $2.10 to $1.80, compared to an estimated loss of $1.40 per share. It also forecast revenue for the same period below estimates.

Excess inventory clearance in the cloud category will continue for a “couple of quarters”, its finance chief Wissam Jabre said in June. Cloud revenue fell 53%, to $994 million, in the quarter ended June 30.

Rival Seagate Technology also forecast downbeat revenue for its first quarter last week, on weakness in major market China and lower tech spending.

Shares of Western Digital fell 2.4% in trading after the bell.

Cutting production – something memory chipmakers did in the first half this year as demand slumped – is a sign that companies are trying to restore order to a supply-glut-ridden industry.

While this has caused steep writedowns in the value of unsold stockpiles and hurt profits, it has also helped stabilize the market.

“Our two largest end-markets, client and consumer, are returning to growth, inventories are normalizing, content per unit is increasing and price declines have been moderating,” said Western Digital’s CEO David Goeckeler, mirroring statements by memory-chip industry giants like South Korea’s Samsung Electronics (OTC:) and SK Hynix that the worst was behind the industry.

Western Digital, which makes hard drives for computers and memory cards, is also exploring strategic alternatives for its business, including a merger with its Japanese joint venture partner, Kioxia Holdings, according to media reports.

(This story has been corrected to say loss, not profit, in paragraphs 1 and 2)