Western Digital to Hold Line on Prices : Computers: The company hopes by refraining from additional cuts to restore profitability, shareholders are told at their annual meeting.
Reeling from price wars in its key computer disk drive business, Western Digital Corp.’s chairman said Tuesday that the company will try to restore profitability by refraining from future price cuts.
The manufacturer of components for personal computers has lost $172 million in the last five quarters, partly because of severe price competition in the disk-drive industry.
Roger Johnson, chairman and chief executive, said at the company’s annual shareholders’ meeting that price erosion is the No. 1 issue facing the company. Disk drive prices have fallen more than 40% during the last year.
Disk drives, which store and retrieve data on a personal computer, account for about half of Western Digital’s annual $1 billion in sales. Next to microprocessors, which serve as a computer’s central brain, disk drives are perhaps the most technologically sophisticated component of a PC.
With four of the six major disk-drive manufacturers losing money, now is a good time to change the industry’s price-cutting habits, Johnson said.
“Our competition is losing money in the same industry blood-letting that we have,” he said. “I think we’ll see a contraction soon among our customers, the computer makers.”
Crawford del Prete, an analyst at International Data Corp., a market research firm in Framingham, Mass., said some Western Digital rivals may be receptive to the idea of holding the line on prices, despite the continuing computer industry slump.
He noted that David T. Mitchell, chief operating officer of Seagate Technology, a Scotts Valley, Calif., disk-drive maker, resigned two months ago. Mitchell had been the architect of Seagate’s price discounting strategy, del Prete said, and his departure may signal a change in that strategy. A spokeswoman for Seagate declined to comment on Western Digital’s pricing strategy.
David W. Schafer, vice president of worldwide sales for Western Digital, said his sales representatives will be given financial incentives to limit price declines.
Even if Western Digital’s strategy is a success, the company does not expect to return to profitability in its current fiscal year, which ends June 30, 1992. The company reported a first-quarter loss of $37.9 million for the period ended Sept.28, contrasted with a profit of $1.7 million a year earlier.
Some shareholders at the meeting expressed disappointment with the company’s performance. The company’s stock price closed Tuesday at $2.375 a share, after hitting $14.25 in mid-1990.
“The question seems to be who is going to go broke first,” said one shareholder. “The competitors or Western Digital.”
Johnson said he was encouraged by the company’s winning some key accounts in the last year with large computer manufacturers, including International Business Machines Corp.
But demand for disk drives and other components for portable notebook computers is below industry forecasts, said Kathryn A. Braun, executive vice president.
Many analysts predicted that demand for notebook disk drives would skyrocket this fall. But 17 manufacturers have begun producing a new generation of notebook disk drives in the last several months, Braun said, resulting in a glut of inventory.
