Western Digital Blames Price War for $25.1-Million Loss

Struggling through what analysts are calling one of the worst price wars in the history of the computer disk drive industry, Western Digital Corp. on Tuesday reported a loss for its latest fiscal year.

The company said it lost $25.1 million, or 79 cents a share, for the 12 months ended June 30. That compared to a loss of $72.9 million, or $2.49 a share, for the previous fiscal year. Annual revenue, however, rose 30% to $1.2 billion from $938 million.

The performance, which was worse than Wall Street analysts had expected, led some to wonder about Western Digital’s long-term survival. But the company discounted such notions.

Charles A. Haggerty, chief executive of Western Digital, blamed the loss on a “relentless price war” among the five major personal computer disk drive companies. Disk drives accounted for about 85% of Western Digital’s revenue.

“We believe we can survive the worst price war and have become a technology leader,” Haggerty said, “and that will carry us through.”

The loss forced Western Digital to negotiate a waiver of its financial covenants for the fourth quarter. Haggerty said the waiver will give Western Digital some added flexibility and he said he was pleased that bankers renegotiated the debt terms in only three weeks, compared to 13 months during Western Digital’s financial crisis two years ago.

The covenants, negotiated after Western Digital ran into trouble paying off its debt in 1991, require the company to meet financial performance measurements.

Western Digital officials were quick to point out that the entire personal computer disk drive industry has hit hard times. Three of five major PC disk drive companies have reported losses or are expected to do so.

Conner Peripherals Inc., which owns the former Archive Corp. tape drive manufacturer in Costa Mesa, reported a loss of $58.8 million for the second quarter. The company cited “unparalleled” price cuts.

Haggerty said that the price war appears to be abating. But Western Digital is still trying to cut its costs, he said. It has laid off about 325 of its 7,500 employees during the past four months, most of them in Santa Clara.

“It will be very difficult for any disk drive company to make money this year in this market,” said Ian Gilson, analyst at investment bank L.H. Friend, Weinress Frankson & Co. in Irvine. “I don’t see a turnaround for at least another two quarters.”

Gilson said he remains concerned about Western Digital’s financial health. While debt is smaller and losses are lower than in 1991, he said, the company still has $206 million in debt and a relatively small cash cushion of $33 million.

For its fourth fiscal quarter, Western Digital reported a loss of $37.8 million, or $1.07 a share. That compared to a profit of $4.1 million, or 13 cents a share, for the same period a year earlier. Three-month revenue was $285.2 million, down from $293.5 million.

Western Digital also makes computer chips and other products used in PCs. Instead of an advantage, however, that division has been a handicap for Western Digital because it has been consistently unprofitable. Haggerty said he expects the division to become profitable by year’s end.

In Tuesday’s trading on the New York Stock Exchange, Western Digital’s stock closed unchanged at $3.875 a share. The annual results were released after the market closed.

Western Digital Posts Loss

Western Digital Corp. reported a $37.8 million loss for the quarter ended June 30. Revenue fell 3% to $285.2 million. The company attributed the loss to a relentless price war in the disk drive industry. Figures in millions of dollars except data per share:

4th qtr 4th qtr 12 months 12 months 1992 1993 1992 1993 Revenue $293.5 $285.2 $938.3 $1,225.0 Net income (loss) 4.1 (37.8) (72.9) (25.1) Per share (loss) 0.13 (1.07) (2.49) ( 0.79)

Source: Western Digital; Researched by JANICE L. JONES / Los Angeles Times