Western Digital Chip Plant Sale Falls Through

Western Digital Corp.’s plans to stabilize its finances suffered a double blow Tuesday as the computer components company not only posted a $5.1-million quarterly loss but reported that a $115-million deal to sell its semiconductor plant had unraveled.

The company would not explain why the tentative sale to Rockwell International Corp. in Seal Beach collapsed.

Western Digital said it has resumed talks with other potential buyers of the 2-year-old computer chip factory in Irvine.

The canceled deal puts increased financial pressure on the Irvine maker of computer disk drives. But it doesn’t force the company into dire straits, said Charles Haggerty, the company’s chief financial officer.

“We do not need to raise any money for any specific debt repayment,” he said.

Analysts disagree about how badly the company needs money.

“They’re a marginal player in an industry where there are plenty of bigger companies like Seagate Technology and Conner Peripherals,” said one analyst, who asked not to be named. “They’ve got to do something to cut their debt.”

John Geraghty, analyst for the First Boston investment bank in New York, said that Western Digital has steadily improved its balance sheet despite its losses.

“This isn’t the end of the world for the plant,” he said. “They’ll find someone else to buy it, and they have enough cash so that they don’t need it right away. The earnings trend has been in the right direction.”

Western Digital has $35.5 million in cash, but it has struggled to pare its $199 million in long-term bank and subordinated debenture liabilities.

The company reported a loss of $5.1 million, or 14 cents a share, for its first fiscal quarter, which ended Sept. 25. Its net income for last year’s first quarter was $4.2 million, or 14 cents a share. Quarterly revenue rose 5% to $285.5 million from $271.1 million.

Thanks to cost cuts, the disk drive business, which accounts for 85% of Western Digital’s business, regained profitability in the first fiscal quarter, the company said. Overall, the company has 6,900 employees, compared to a peak of 7,700 nine months ago. About 1,380 work in Orange County.

Western Digital, which has made its own chips for its computer products for the past 23 years, invested more than $120 million to build the 224,000-square-foot plant in Irvine. The plant, which employs 400, produces silicon wafers that are cut into individual chips.

But the company is in the throes of a price war in its primary business--the manufacture of hard disk drives--and decided it had to sell the plant to raise cash.

Rockwell’s telecommunications division in Newport Beach needs a plant to manufacture computer chips for its facsimile machines and computer modems.