Western Digital Posts $37.9-Million Quarterly Loss : * Earnings: The computer components maker cites both internal and industrywide problems for larger-then-expected deficit.
Unable to introduce new products fast enough and hurt by severe industry price cuts, computer components manufacturer Western Digital Corp. on Thursday reported a first-quarter loss of $37.9 million.
The quarterly loss was the company’s biggest since it reported a $98.5-million loss in the quarter ended Dec. 31, 1990.
The $1.30-a-share loss for the quarter ended Sept. 28 contrasted with a profit of $1.7 million, or 6 cents a share, for the year-earlier quarter. Revenue for the quarter fell 22% to $199.1 million from $255.8 million a year earlier.
A loss had been expected by most analysts, though the size of it surprised some. Western Digital’s stock closed Thursday at $2.875 a share, up 37.5 cents in trading on the New York Stock Exchange.
Roger W. Johnson, chief executive, said the company was behind competitors in bringing new products, such as hard-disk drives for notebook computers, into production fast enough to make up for falling demand of older products.
The loss was also magnified by rampant price cutting in the computer industry, softening demand resulting from the recession and customer fears about Western Digital’s financial condition.
Pointing to the lone bright spot, Johnson said the Irvine-based company finally completed a restructuring of $205.8 million in debt after 11 months of negotiations with 13 banks.
The agreement requires the company to pay $25 million in loan payments at interest rates ranging from 7.5% to 9.25% through July 1, 1993, rather than paying $140 million at higher interest rates under prior loan agreements.
After the 1993 date, Western Digital will have to negotiate a new agreement with lenders. In return, the bank debt will be secured by company assets, and the lenders have the right to buy 1.7 million shares of stock at market prices over the next five years. Western Digital recorded a $15.5-million pretax charge in the fourth quarter to cover costs of the restructuring.
“The completion of the agreement removes a dark cloud overhanging the company,” said Robert J. Blair, a company spokesman.
The agreement, Blair said, puts Western Digital into compliance with its loan agreements and gives it more operating flexibility.
A key part of the agreement was the company’s sale of its network products business for $33 million in October.
Ian Gilson, an analyst at L. H. Friend, Weinress & Frankson Inc., an Irvine securities firm, expressed surprise at the $32.1-million operating loss for the quarter. He said the company’s $37.6 million in cash, which includes the proceeds from the network division sale, isn’t much of a cushion at that rate of loss.
“It’s a bad loss,” he said. “To be behind the technological curve like that is the best road toward bankruptcy. They have to keep up and see some positive cash flow if they are going to have any hope of paying back the bankers.”
Blair said the loss was unacceptable, but he said the company has no plans to file for bankruptcy protection.
Other analysts were more upbeat. They noted that the bank agreement was a major step forward for the company. They also said other disk-drive manufacturers have also suffered big losses due to the recession and severe price cutting.
“They have a difficult road, and it’s not going to be a quick turnaround,” said Lawrence W. Borgman, an analyst with Dillon Read & Co., an investment banking firm in New York. “But if they had been on the bankruptcy path, the banks wouldn’t have backed them.”
Johnson said the industry outlook remains uncertain. He said he is encouraged by stable prices and increased demand for the company’s high-capacity disk drives, which are beginning to enter volume production.
“With this strong new product lineup and our restructuring activities for the most part behind us, Western Digital should be well-positioned to compete successfully when the industry and economy begin to stabilize,” Johnson said.
Meanwhile, he said, the company would continue to look for ways to reduce its operating costs. Blair said the company has no current plans for layoffs.
Western Digital’s 1st Quarter
The company lost $37.9 million for its first fiscal 1991 quarter, ended Sept. 28, contrasted with net income of $1.7 million a year ago.
Dollars in thousands, except per-share data
Percent 1991 1990 Change Total revenue $199,145 $255,819 -22.2 Net earnings (37,944) 1,654 NA Earnings per share (1.30) 0.06 NA
Source: Western Digital Corp.
