Western Digital Earnings Dip Despite 60% Revenue Gain
Western Digital’s revenue soared 60% in the past year, but the Irvine computer products company said costs associated with that rapid growth resulted in a 5% dip in earnings from a year ago.
Earnings for the 1988 fiscal year ended June 30 dropped to $43.4 million, from $45.8 million in fiscal 1987.
The company’s sales continued to grow rapidly, jumping to $768.3 million, compared to $481.4 million last year.
Despite the slight year-to-year earnings decline, Wall Street reacted favorably to Western Digital’s numbers. In American Stock Exchange trading, the company’s shares gained 9.5% to close at $14.375 per share, up $1.25.
“Next year looks very strong,” Roger W. Johnson, Western Digital’s chairman, said in an interview. “We feel pretty good that we should exceed $1 billion (in revenue) next year.
“We see our markets very strong over almost every dimension. I think that is an indication that personal computers are being used by more people and becoming much more ubiquitous than most people think,” Johnson said.
The Irvine firm said its year-end backlog of orders--a clue to future sales and earnings--was $297 million, or four times higher than a year earlier.
Western Digital manufactures a broad line of products that are used in personal computers, including memory chips, circuit boards and disk drives.
Western Digital attributed the year-to-year earnings decline to manufacturing inefficiencies, higher-than-usual spending on product development and lower profit margins on its circuit board and disk drive products.
However, Johnson said, “the pressures on profitability that the company experienced in the second and third quarters continued to diminish in the fourth quarter.”
On a year-to-year basis, Western Digital’s fourth-quarter earnings rose 2% to $14.7 million, from $14.4 million. However, the company’s fourth-quarter earnings showed a strong improvement from the third quarter, when earnings fell 35% to $8.3 million.
Western Digital said earnings during the latest quarter were negatively affected by higher costs of certain memory chips the company purchases from outside suppliers. The company said it has not been passing on those higher costs--totaling $5.9 million last quarter--to its customers, but will do so in the future.
Earnings were also hurt by losses due to foreign currency exchange rates, which Western Digital said cost it $2 million in the latest quarter. Overseas sales accounted for about half of Western Digital’s revenues in 1988.
