Western Digital Expecting to Post Profit : Recovery: Maker of chips, disk drives appears ready to snap a six-quarter string of losses totaling more than $200 million.
Western Digital Corp., a struggling maker of computer chips and disk drives, expects to report a quarterly profit after six consecutive losses, company officials and analysts said.
That single positive blip on a falling fever line isn’t a lot to brag about, said Charles A. Haggerty, who became president of Western Digital six weeks ago. But it is evidence that the company can put rumors of an impending bankruptcy filing behind it.
Some analysts say that losses could return for Western Digital and other disk-drive makers, particularly if the wave of summer price cuts in the personal-computer industry spreads to makers of components. But others say Western Digital could be buoyed by a recovery that they anticipate in the disk-drive industry this year and by the company’s new mix of products and customers. Disk drives, which store data on PCs, account for 80% of the company’s annual revenue.
“The shake-out already took place in the disk-drive industry, so we’re 12 to 18 months ahead of the PC industry,” Haggerty said. “A lot of the players in disk drives learned their lesson about overproduction. We can expect to show a profit” for the fourth fiscal quarter, which ended June 30. “What encourages me is that we have been able to do that and still invest in research and development.”
Roger W. Johnson, chairman of Western Digital, added: “We’re not going to be untouched if 30 to 40 computer companies go out of business. The disk-drive industry is still very volatile, but I feel we understand it a little better now.”
Western Digital last reported a quarterly profit in September, 1990, when the company had net income of $2 million, or 6 cents a share. After that, its sales began to unravel with the onset of the recession and a poorly timed transition between technologies.
An analyst at Needham & Co., an investment bank in New York, recommended Western Digital’s stock two weeks ago, the first such nod in about two years. Analyst John McManus projects a profit of about $2 million in the fourth quarter, which will trim the company’s loss for the fiscal year to about $75 million.
McManus notes in a recent report that the company has lost more than $200 million over the past six quarters, has held intense negotiations with its bankers and has fought to keep customers amid rumors of an imminent bankruptcy filing. But he said the company is benefiting from cost-cutting and a slowdown in price erosion for disk drives. A year ago, prices were falling 15% each quarter because of massive overproduction in the industry, but that has slowed to 5% a quarter.
Bob Katzive, vice president at Disk/Trend Inc., a research firm in Mountain View, said Western Digital is participating in an overall recovery of the disk-drive industry during 1992. He expects the $25 billion U.S. industry to expand its revenue by 8% this year, contrasted with a 7% contraction last year. Unit shipments are expected to increase by 15% to 20%.
McManus of Needham & Co. said he is also impressed with Johnson’s ability to attract top managers such as Haggerty, a 28-year veteran of International Business Machines Corp. who most recently expanded the computer giant’s third-party disk-drive sales division.
In the coming year, Johnson said, he will focus on strategic issues, such as making sure the company can renegotiate terms of its $204-million bank debt. A previously negotiated agreement with lenders expires in mid-1993. Western Digital resumed making loan payments in the third fiscal quarter.
Haggerty, meanwhile, will focus on day-to-day control of the company. He said the company plans to be timely in launching the next generation of its 1.8-inch disk drive, which it is developing jointly with Nippon Steel Corp.
The new drives are scheduled to be introduced later this year, along with a raft of new products, spokesman Robert Blair said.
Haggerty expressed optimism as the company enters its new fiscal year. “It’s working out well,” he said. “The management team here has matured and learned the lesson of survival.”
Western Digital Corp. at a Glance Headquarters: Irvine
Chairman: Roger W. Johnson
President: Charles A. Haggerty
Business: Maker of computer chips and disk drives
Employees: 6,390
Annual revenue: $992.1 million
Source: Standard & Poor’s Register
Projecting a Profit The company, which has posted losses for six consecutive quarters, says it will report a profit for the period that ended June 30. Because of new products and a broader customer base, analysts are projecting an increase in sales this year for two Western Digital disk drive lines:
Worldwide Market Share:
3.5-in. disk drive used in desktop computers 1991: 8.7% 1992 (Projected): 11%
2.5-in. disk drive used in laptop computers 1991: 4% 1992 (Projected): 7%
Source: International Data Corp.
