New Price Cutting Threatens Western Digital
Along with the departure of Roger W. Johnson, a pioneering chairman and chief executive of Western Digital Corp., the computer company must also brace for another round of crippling discounting that threatens its precarious recovery.
Wall Street analysts said Monday that they believe that the $941-million company has planned its leadership succession well but that Western Digital is still perched on treacherous ground as the computer industry enters a new stage of price cutting.
Charles Haggerty, an ex-IBM Corp. executive who was appointed president and chief operating officer last June, is a shoo-in to replace Johnson as chief executive officer and possibly the chairmanship as well, analysts suggest.
“It’s fair to say I’ve been phasing (Haggerty) into the job,” Johnson said in an interview Monday. “I had planned to stay with the company in some capacity, but not now.” Johnson said he would recommend that the board of directors appoint Haggerty as chief executive, once he formally steps down. Haggerty was traveling in Europe on Monday and could not be reached for comment.
“I think this is a win-win situation since Roger has been politically involved with the Clinton Administration for some time and it’s a culmination of a lot of personal hard work,” said John C. Dean, analyst at Salomon Bros. investment banking firm in San Francisco. “I think it’s positive for Haggerty because he has wanted to expand his responsibilities and he is very familiar with its operations.”
Johnson, who joined the company in 1982 when it had less than $25 million in sales and helped it grow to a billion-dollar company with more than 7,600 employees, said he will probably leave the company in six to 10 weeks if he is confirmed by the Senate for the new post. Otherwise, he will stay with the company.
Western Digital makes computer disk drives, which store and retrieve data for personal computers, as well as computer chips for use in a variety of PC components. Aside from the microprocessor, or main number-crunching unit, the disk drive is the most sophisticated gadget within a PC.
Managing Western Digital became a life-or-death struggle for Johnson as the recession and a poorly timed technological transition caught the company off guard.
Under Johnson’s watch, the company suffered a disastrous string of seven quarterly losses totaling $172 million in 1990 and 1991. But the company pared back employment by hundreds and survived. It eventually rode the crest of an industry recovery and returned to profitability in the middle of last year. Since then, a fierce industry price war subsided and the company has been profitable.
After Haggerty came aboard last summer to manage day-to-day operations, Johnson and Vice Chairman George Bragg concentrated on renegotiating with bankers to postpone payments on Western Digital’s $200 million in long-term debt.
The company completed its financial restructuring in January by issuing nearly $40 million in new stock and winning delays in its loan repayment schedule. The agreement left Johnson and Bragg, who resigned his post as vice chairman last month, free to pursue their own ambitions.
Western Digital’s financial rebound will be difficult to maintain, analysts said Monday. Last month, the company reported that its quarterly earnings would be hurt by a resurgence of disk drive price wars.
Phil Devin, a disk drive industry analyst at market researcher Dataquest Inc. in San Jose, said prices are falling as much as 15% this quarter.
Devin warns that the entire industry could suffer losses if that rate of price cutting continues.
Still, he added, Western Digital “is in as good condition as it’s been for years, and Roger gets some of that credit.”