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Total Expenses were $17.32 billion in 2019
Breakdown of Western Digital's Total Expenses in 2019:
Total = $17.32 Bil
Cost of Sales = $12.82 Bil
Operating Expenses = $3.66 Bil
Non-operating expenses = $374 Mil
Income Tax Expense = $467 Mil
Western Digital's total expenses have dropped gradually from around $18.7 billion in 2017 to about $17.32 billion in 2019.As a percentage of revenues, expenses have grown, going from 97.9% in 2017 to 104.6% in 2019.Cost of sales is the biggest expense head for the company, with it being 68.2% of revenue in 2017, before increasing to around 77.4% of revenue in 2019. This increase has led to a substantial drop in profitability, driving EPS from $1.38 in 2017 to -$2.58 in 2019.However, with revenue expected to rise by 2021, cost of sales as % of revenue is likely to drop to 72.7%, leading to a projected rise in net income margin from -4.6% in 2019 to 1.7% in 2021.This projected growth has helped drive a >45% rise in Western Digital's share price since the start of December 2019.Below, we take a look at the key drivers of Western Digital's expenses and net margins.
Western Digital's total expenses have decreased from $18.7 Billion in 2017 to $17.32 Billion in 2019
% Change in total expenses
Western Digital's total expenses have decreased from $18.70 billion in 2017 to about $17.32 billion in 2019.
For 2020, we expect total expenses to stand at $16.17 billion, which comprises of
1) Cost of Sales: $12.10 billion
2) Operating Expenses: $3.60 billion
2) Non-Operating Expenses: $433 million
3) Income Taxes: $45 million
Below, we take a look at how the company's key expense components have trended and the key reasons for the change.
(A) R&D Expense has dropped from $2.44 billion in 2017 to $2.18 billion in 2019. This metric has dropped over the past 2 years, but we expect this metric to rise further by 2021, as Western Digital is expected to focus on development of better memory products, with the supply demand differential expected to return to normal. As a % of Revenues, SG&A has grown marginally from 12.8% in 2017 to 13.2% in 2019.
R&D expenses as a % of revenue
(B) SG & A Expense has dropped marginally from $1.45 billion in 2017 to $1.32 billion in 2019. This metric has dropped over the past 2 years, at a rate slower than the drop in revenue, and this has primarily been due to a drop in selling prices. However we expect this metric to rise by 2021. As a % of Revenues, SG&A has grown marginally from 7.6% in 2017 to 7.9% in 2019.
Selling, General and Administrative expenses
S,G & A as a % of revenue
(C) Other Expenses have dropped marginally from $232 million in 2017 to $166 million in 2019. Other expenses include employee termination costs, asset impairment charges, and other miscellaneous expenses. This metric has dropped over the past 2 years, going from 1.2% of revenue to 1% of revenue. We expect this metric to come in at 1.1% of revenue over the next 2 years.
Other expenses as a % of revenue
4) Western Digital's Income Tax Expense first increased from $370 million in 2017 to $1.41 billion in 2018, before dropping to $470 million in 2019. Going forward, we expect an effective tax rate of 22.5%, with income tax expense coming in at around $90 million in 2021
Income Tax Expense
Effective Tax Rate
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