Western Digital Will Sell Disk Media Business

Irvine-based Western Digital Corp. has agreed to sell its disk media business for about $80 million in stock to one of its suppliers, the companies said Wednesday.

The sale to San Jose-based Komag Inc. is a continuation of Western Digital’s strategy of slimming down to its core operations.

Last month, the hard-drive manufacturer said it would lay off up to 750 people worldwide as part of a restructuring. Most of those layoffs occurred in Singapore, where the company consolidated its two plants into one.

Some of Western Digital’s disk production equipment, in Santa Clara and San Jose, will probably be moved to Komag’s facilities in Malaysia, and an unspecified number of jobs will be cut over an 18-month transition period, said William Potts, Komag’s chief financial officer. Komag has about 4,689 workers, and about 1,100 people are employed at Western Digital’s disk media facilities.

The disk media business had been operated by Western Digital since 1988, and provided about 61% of Western Digital’s desktop disks last year.

The deal with Komag includes a three-year volume purchase agreement under which Western Digital will buy a substantial portion of its disk media from Komag, which already is a main supplier. During the most recent quarter, nearly 90% of Western Digital’s total media requirements were supplied by a combination of its own operations and Komag, Western said.

“It’s becoming increasingly difficult to achieve a low-cost disk out of that facility, and we’ve concluded that the best way to go is to put that in the hands of someone who focuses on that,” said Western Digital spokesman Robert Blair. “This deal will lower our fixed cost structure and enables us to reduce capital spending going forward.”

Komag will issue unregistered shares of its common stock to Western Digital in exchange for the assets, Potts said. Unregistered shares cannot be sold until registered with the Securities and Exchange Commission or when certain time restrictions are met over the 3 1/2-year period covered by the agreement.

“We structured it this way to avoid flooding the market with shares, and it allows Western Digital to realize a potential price appreciation over the period,” Potts said.

Blair said Western expects to take a $10-million to $15-million charge for goodwill and severance payments in the quarter that the agreement is completed.

The agreement was announced after U.S. markets closed. Western Digital’s stock fell 9.5%, or $1.06 a share, to $10.13. Komag shares closed at $6.63, off 81 cents.

Bloomberg News contributed to this story.