Western Digital Starts Year With Lower Sales, $3-Million Loss
Western Digital, blaming natural, technological and economic forces, said Wednesday that it will post a net loss of about $3 million and lower year-to-year sales for its first quarter ended Sept. 30.
In releasing preliminary results, the Irvine computer company said the loss--the first since the fourth quarter of 1985--was related to disruption of offshore operations by Hurricane Hugo, changes in computer graphics technology and a stronger dollar.
The company, the largest high-technology company in Orange County, lost millions of dollars in revenue during the quarter when production at its plant in Puerto Rico was disrupted for three days after Hurricane Hugo swept across the island and caused heavy damage. The plant itself was undamaged.
“The hurricane came during our peak production,” Chairman Roger W. Johnson said. “There was no power and the airport was closed so we couldn’t get material in. If that hadn’t happened, we might have had a slight profit” for the quarter.
Johnson also attributed the loss to a change in computer graphics technology, which has dampened the company’s sales of products used to create charts, graphs and illustrations from computer data.
But Johnson said the outlook for the rest of the year is favorable, adding that the company expects a return to profitability in the current quarter ending Dec. 31.
Despite the bad news, Western Digital shares closed at $7.375 a share, up 12.5 cents, in American Stock Exchange trading. The stock has traded as high as $15.25 and as low as $7 during the past 52 weeks.
R. Mark Matheson, an analyst with Cruttendon & Co. in Newport Beach, said the stock market may have already discounted the stock in anticipation of a poor financial showing. “I started to hear a couple weeks ago that they were preparing people for lower earnings,” he said.
Still, the first-quarter loss surprised some Wall Street securities analysts, who generally had been forecasting a modest profit for the company.
“I expected a poor quarter, but this is worse than I thought,” said Robert Sullivan, an analyst at Paine Webber in New York.
Karen Payne, who follows Western Digital for Butcher & Singer in Philadelphia, said she spoke with company executives several weeks ago and “they told us that Hurricane Hugo was not going to be as big a deal as this and would mean only $8 million to $12 million in lost revenue. Based on my financial model, I didn’t see how that got them to a loss.”
Western Digital said revenue for the quarter fell to about $225 million, from $247 million in the year-earlier period. A year ago, the Irvine firm earned $12.9 million.
The company said it will report final results for the quarter today.
Hampered by lackluster personal computer sales and assorted problems with certain product lines, Western Digital’s earnings tumbled 21% to $34.3 million on revenue of $992 million in the year ended June 30.
Johnson blamed problems with the company’s graphics business for the quarterly loss. He said the industry’s transition to a technical standard known as VGA (video graphics array) from the EGA (enhanced graphics adapter) standard has created an oversupply of the old graphics products among retailers and distributors.
“The demand shifted from EGA to VGA,” a technology that produces sharper images on computer monitors, Johnson said. “We had expected the shift but didn’t recognize it would move so fast.”
Western Digital is a major producer of computer chips and other components used in computer graphics applications. The company also makes a wide variety of chips, circuit boards, storage devices and other components used in personal computers.
A lesser factor in the quarterly loss, Johnson said, was a stronger dollar, which cut the value of overseas revenue and earnings when they are translated into dollars.
Johnson said the company has cut operating expenses about 10% over the last several quarters in response to market conditions. Earlier this year, the company slashed 1,000 jobs, including about 275 in Irvine, to reduce its worldwide employment to about 6,500.
Despite the company’s loss, Johnson said he believes Western Digital stock is “grossly undervalued.” But Matheson disagreed.
“There is no confidence in Western Digital management on (Wall Street) right now,” he said. “The best thing that can happen to Western Digital is they get bought out.”
WESTERN DIGITAL REPORTS QUARTERLY LOSS
Western Digital is an international manufacturer of a variety of computer chips, circuit boards and other components used in personal computers.
Year ends June 30
(in millions) 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr. 1990 1989 1989 1989 1989 Revenue $225 $243.5 $243 $258.4 $247 Net income (loss) *($3.0) $4.3 $4.4 $12.7 $12.9
* Estimated
Number of employees: 6,500
52-week price range: $15.25-$7
Wednesday’s closing price (Amex): $7.375, up $.125
Chief executive: Roger W. Johnson
Source: Western Digital
