Morgan Stanley downgraded Western Digital to Equal Weight and cut its view on the US IT Hardware Industry to Cautious from In-Line. The firm's June CIO survey indicates incremental enterprise IT budget weakness, and when combined with a downtick in cloud capex, results in a reduction in estimates and multiple compression. Morgan Stanley lowered its price target on shares to $70 from $113.

Sees Q4 revenue $3.6B-$3.8B, consensus $3.69B.

Reports Q3 GAAP EPS 34c. Reports Q3 revenue $3.46B, consensus $3.36B. "As evidenced by our excellent third quarter results, Western Digital continues improving through-cycle profitability and dampening business cycles by leveraging our strategy of developing a diversified portfolio of industry-leading products across a broad range of end markets," said David Goeckeler, Western Digital CEO. "We are in the early innings of unlocking the full potential of this company, and as industry supply and demand dynamics continue to improve, we will remain disciplined around our capital spending and focused on driving innovation and efficiency across our businesses. We are confident in our strategy and the actions we have taken to-date, which successfully position us to capitalize on the promising growth prospects that lie ahead."

Pre-earnings options volume in Western Digital is 1.4x normal with calls leading puts 7:5. Implied volatility suggests the market is anticipating a move near 6.2%, or $4.32, after results are released. Median move over the past eight quarters is 2.1%.