EARNINGS : Western Digital Profit Off 29% Despite $1-Billion Year
Irvine-based Western Digital Corp. reported Friday that its net income dropped 29% to $24.2 million for its fiscal year ended June 30, despite a strong fourth quarter and annual sales that topped $1 billion for the first time.
In a separate announcement, the company said Kathryn A. Braun, 39, who has headed its storage businesses since 1981, has been promoted to a newly created No. 2 executive post. As executive vice president, Braun will be responsible for overseeing all manufacturing operations, marketing and research and development.
One Wall Street analyst and a company insider said Braun is considered a likely successor to Roger W. Johnson, the company’s 56-year-old chairman, president and chief executive. But other analysts said the line of succession is unclear and that Johnson’s retirement is not expected soon.
Johnson said in an interview that the company created Braun’s position to improve cooperation between divisions as part of a program to better coordinate product design and manufacturing.
“In our businesses, the strategy is in place, and it’s a function of how well we execute,” Johnson said. “Kathy Braun has demonstrated excellent operations expertise.”
Western Digital also disclosed that it signed a key product development agreement with International Business Machines Corp. during the fourth quarter. Johnson said the company also expects to negotiate another manufacturing agreement with IBM during the current quarter that would “further strengthen” the company’s relationship with IBM. He declined to be more specific.
Johnson also declined to comment on persistent rumors that Western Digital will produce a notebook-sized computer for IBM. Wall Street analysts said they believe that Western Digital will make the computer, but they cautioned that it should not be considered a done deal.
Western Digital’s sales for the fiscal year were $1.07 billion, up 8% from $992.1 million a year earlier. Analysts said earnings for the fiscal year were depressed by a $2.7-million loss in the first quarter, when the company was still recovering from a downturn in early 1989.
For the fourth quarter, the company earned $9.5 million, up 120% from $4.3 million a year earlier. Revenue rose 20.6% to $293.9 million from $243.5 million.
Lawrence W. Borgman, an analyst for Dillon Read & Co. Inc. in New York, said Western Digital’s fourth-quarter results exceeded expectations. “They are moving higher along the technology curve, with new generations of products coming out, especially in the disk-drive business,” he said.
Johnson said the result for the latest quarter “reflects the underlying strengths of our products and the strategies that we have been pursuing over the past two years.”
Western Digital’s strategy has been to become a kind of one-stop shopping center for PC manufacturers by supplying a wide variety of components. Western Digital stock closed unchanged Friday at $12.375 per share in trading on the American Stock Exchange.
The company said it has received a $38-million order to supply 3.5-inch “intelligent” disk drives to a U.S. computer manufacturer over the next six months. The company declined to identify the customer.
