Western Digital Division in Irvine Might Be Sold : Technology: The highly profitable communications networking products unit is on the market, industry sources say.
Western Digital Corp., the struggling maker of personal computer components, has put its highly profitable division of communications networking products up for sale, industry analysts said Thursday.
While company officials declined comment on the possible sale, industry sources said the move was designed to generate more cash in troubled times and to further narrow the company’s strategic focus to only closely related PC products.
Brad Baldwin, an analyst at Gartner Group, a market research firm in Stamford, Conn., said Western Digital has approached several competitors with a proposal to sell the networking business, which doubled its revenues in the last fiscal year.
Western Digital’s networking unit manufactures add-on boards that adapt a personal computer to communicate with a network of PCs hooked together by cable. Along with the boards, the company sells networking software to drive the hardware and other accessories.
“There are a lot of rumors about the sale of (Western Digital’s networking) business on the street,” Baldwin said. “It is a very good business, and I believe it could draw a good price. I don’t know why they want to get out of it, unless they are concerned about strategic focus or need the cash.”
Robert J. Blair, spokesman for the company, declined to comment on the rumors about an impending sale.
A Wall Street analyst, who also said the networking unit is for sale, estimated that Western Digital could sell the division for $24 million to $40 million.
The networking industry has boomed into a multibillion-dollar business in recent years as corporations attempt to improve the productivity of their employees by allowing them to share vital information on PC networks.
Among possible buyers for the unit is Standard Microsystems Corp., a network products company in Hauppauge, N.Y., and National Semiconductor Corp. in Santa Clara, a semiconductor company that manufactures chips for Western Digital, industry sources said.
Tony D’Agostino, chief financial officer for Standard Microsystems, declined comment on whether the company had been approached by Western Digital. “We are looking to expand our business, either internally or by acquisition,” he said.
A spokeswoman for National Semiconductor declined comment.
The networking business is the only unit of Western Digital’s five business units that has not been consolidated under a single corporate entity during the company’s restructuring in the past six months. In the year ended June 30, the company reported networking revenues of $92 million, or 8.5% of the company’s $1.07 billion in sales.
Blair said the communications division is broken out as a separate unit because the company does not believe at this time that it will gain advantages in the near term from co-designing the products with other components. The unit employs 75 people, mainly in Irvine.
In other words, analysts say, the business doesn’t fit.
“It is not the right business for us and it doesn’t play off our strengths at all like the other business units,” said one source, who asked not to be identified. “I believe networking is a very strong business. But the company has to decide what business it will be in and do that well.”
For the past eight years, Western Digital has tried to become a one-stop supermarket for makers of personal computers. Under this strategy, called interarchitecture, the company could theoretically leverage its engineering know-how in each component area--such as graphics or disk drives--to design its components to function much faster when put together as a single computer system.
The stock analyst, who spoke on condition of anonymity, said a sale could help the company now because it is “hemorrhaging losses.” The company’s stock closed Thursday at $5.25, down 12.5 cents, in trading on the American Stock Exchange.
Western Digital has suffered a precipitous drop in its business because of an ill-timed technological transition. Demand for its older board-level products has dropped rapidly, but the company’s new high-volume disk drives won’t be ready until midyear.
In February, the company expects to report a one-time $60-million to $70-million charge against earnings related to the closing of its plant in Puerto Rico.
The company is also redefining its corporate structure, adopting a more centralized unit reporting to Kathryn A. Braun, who was appointed executive vice president in a management shake-up in July. The restructuring will lead to additional layoffs this quarter, the company said last month.
Times staff writer Cristina Lee contributed to this story.
