Western Digital Reports Loss of $145.2 Million

Continuing a long slide on the computer industry’s endless economic roller coaster, Western Digital Corp. reported Thursday that it lost $145.2 million last quarter as revenue slumped more than 13%.

Analysts had been expecting a dismal report. The maker of hard disk drives had warned investors and analysts several times late last year that it would take a huge second-quarter write-down to adjust for the impact of plunging prices.

But weakening market conditions forced the company to take a charge of $148 million, more than 50% higher than the $95 million Chairman Charles Haggerty had forecast on Dec. 2.

Two other major disk drive makers--Seagate Technology Inc. and Quantum Corp.--also had posted losses after including restructuring costs that were larger than initially estimated. The three companies control 65% of the world disk drive market.

Western Digital’s loss for its fiscal 1998 second quarter, equal to $1.66 a share, compared with a year-earlier profit of $64.2 million, or 68 cents a share.

Revenue for the three months ended Dec. 27 fell to $969.6 million from $1.12 billion a year earlier.

Before subtracting its huge second-quarter charge, Western Digital actually surpassed analysts’ guesses with a small operating profit of $2.4 million, or 3 cents a share. Analysts had been predicting an operating loss of about $800,000.

A year ago, the Irvine-based drive maker and its competitors were soaring on predictions that all was rosy and getting rosier in their industry.

But the computer business changes quickly. By the middle of last year, demand for expensive computers fell as computer makers switched their emphasis to machines that could sell for $1,000 or less. The big drive makers like Western Digital found themselves with too much product for the high-end desktop computer market and not enough lead time to develop the new technologies needed to compete in the downscale computer market.

Haggerty said Western Digital’s second-quarter hit was the result of a production shift that will enable the company to eliminate its portable computer hard drive business to concentrate on drives for desktop personal computers and large business computers.

Haggerty also said that the company has reached a new agreement with BankBoston Corp. to replace its previous $150-million credit line with $250 million of secured financing.

Like its competitors, Western Digital is spending money on new technologies to build drives that can handle the multitude of new software programs that take up ever-larger amounts of memory and require faster microprocessors.

Disk-drive makers compete in an industry where significant technological advances come along at about 18-month intervals, rendering obsolete all the products developed under the last technological breakthrough.

The company issued its second-quarter report after the stock market closed Thursday. Its shares fell almost 5%, or 88 cents, to $17.25, on the New York Stock Exchange. The stock has lost almost 70% of its value since hitting a high of $54 on Aug. 20.

Seagate stock, which fell 81 cents Thursday to $20.63, has fallen 54% on the Big Board since early August. Nasdaq-traded Quantum shares, off 50 cents for the day to $21.25, have fallen 51% since late September.

Western Digital’s woes have made it a lightning rod for suits by disgruntled investors. Three separate actions have been filed since early November, each alleging that the company withheld information or misrepresented facts to artificially inflate the value of its stock over the last year.

Company officials have called the suits groundless. “They are a cost of doing business these days,” spokesman Robert Blair said. “But we do take them seriously and defend against them vigorously.”

For the first six months of its fiscal 1998, Western Digital posted a loss of $82.5 million, or 95 cents a share, compared with a year-earlier profit of $97.1 million, or $1.04 a share. Excluding the second-quarter charges, the company would have reported a profit of $65.1 million, or 70 cents a share, for the first half of this year.

Revenue was up slightly to $2.06 billion from $2 billion.