Western Digital Finds Buyer for Multimedia Unit : Technology: The sale to Philips is the latest move by the company to refocus on its disk drive business.
In its biggest move yet to return to its core business of making computer disk drives, Western Digital Corp. said Wednesday that it will sell its multimedia products unit to Philips Electronics.
Terms of the deal, which is expected to close in November, were not disclosed. Industry analysts said the Netherlands company probably will pay Western Digital between $50 million and $65 million for the multimedia unit, which is based in Mountain View and employs 75 people.
Multimedia technology, which takes advantage of a computer’s ability to play video and sound, is simply too far removed from Western Digital’s disk drive products, said Chuck Haggerty, Western Digital’s chief executive. Disk drives store computerized data, from letters and graphics to pictures and music.
“The company is sharpening its focus on the vast opportunities represented by information storage,” Haggerty said.
The multimedia unit accounted for about $100 million in sales last year, less than 5% of the $2.1 billion that the Irvine manufacturer reported in annual revenue for the fiscal year that ended June 30, said company spokesman Robert Blair. Sales of disk drives to computer makers such as IBM and Compaq account for about 90% of Western Digital’s annual revenue, he said.
The unit, which makes electronic devices that improve the speed and visual richness of computer games and other entertainment software, “wasn’t an area of stellar growth,” Blair said. Its sale was part of a long-term strategic move.
“For us to be as successful as we would want, we would have had to double the size of the business,” he said. “We think that money is better invested in our core business.”
Industry analysts supported the sale. They pointed out that in recent years, Western Digital has shed other units, including a semiconductor fabrication plant in Irvine, that weren’t part of the company’s core product line.
The sale of the multimedia unit is a sign that Western Digital “is taking aggressive steps to divest non-strategic operations and improve profitability at a time when its disk drive operations are under pressure,” said Paul Weinstein, an analyst at PaineWebber Inc., in a written analysis of the deal.
Despite Wall Street’s support for the sale, the company’s stock fell 37.5 cents a share to close Wednesday at $15.50 a share on the New York Stock Exchange.
Blair said the sale is not related to the expected shortfall in this quarter’s earnings. Last week, Western Digital said its profit for the current quarter would fall “substantially below” previous Wall Street projections of about $20 million. The company said fierce price cutting slashed profit margins on its personal computer disk drives.
Analysts now expect Western Digital to earn $5 million to $10 million this quarter.
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Getting Back to Basics
Computer disk drive manufacturer Western Digital Corp. has sold its multimedia products unit in order to focus on “the vast opportunities represented by information storage.” Last week the company said its quarterly earnings would fall well below Wall Street projections.
Headquarters: Irvine
Employees: 6,593
Chairman / CEO: Charles Haggerty
Business: Computer disk drives
Division sold: Multimedia products
Purchaser: Philips Electronics of the Netherlands
Terms: Undisclosed
Division headquarters: Mountain View
Fiscal 1995 revenue: $100 million
Employees: 75
Sales and Earnings Trend
Western Digital enjoyed record revenue and profit in fiscal 1995, but is expected to report net income below its original projection of $20 million for the first quarter of 1996. Sales and net income, in millions:
Sales
1995: $2,130.9
Net Income
1995: $123.3
Source: Bloomberg News Service; Researched by JANICE L. JONES / Los Angeles Times
