Western Digital Chief Faces Frustrated Investors

With his company struggling in an intense price-cutting industry, Western Digital Corp. President and Chief Executive Charles Haggerty on Thursday addressed a room full of frustrated but subdued shareholders in what is likely to be his last annual meeting.

Fielding numerous shareholder questions, some of them chiding, about the company’s gloomy prospects, Haggerty gave a cautious but upbeat prognosis, although he repeatedly declined to say when the Irvine-based computer hard drive manufacturer might break a streak of eight quarterly losses totaling $952 million.

“We will have reason for celebration if everybody supports a firmed-up pricing atmosphere,” said Haggerty, chastising competitors for instigating a two-year price war that has caused losses for every manufacturer of hard drives for desktop computers. “Unfortunately, they haven’t yet, and so it may be a while before we see a truce.”

Last week, Maxtor Corp., one of four independent U.S.-based hard drive manufacturers, said it would raise prices on its highest-volume products, but Haggerty said that few others have followed suit.

Still, most hard drive manufacturers saw their stocks jump last week and at least one financial analyst boosted his ratings for Maxtor, Quantum Corp. and Seagate Technology Inc. because he saw demand for hard drives outweighing supply.

Western Digital stock, which has lost nearly 75% of its value this year, closed unchanged Thursday at $3.94 a share on the New York Stock Exchange.

Several shareholders, upset that the company’s stock has slumped to an all-time low this year, said Thursday that they would like to see the company sold.

“It would just seem to me that they need to line up with someone with deeper pockets and better distribution,” said Michael Napoli, a shareholder from Santa Monica.

Haggerty, citing company policy, declined to discuss potential buyout rumors.

Other shareholders seemed resigned to their losses.

“I’m millions of dollars poorer than I was a year and a half ago,” said Robert Wyshak, a Beverly Hills shareholder who has held Western Digital stock for a decade. “It’s really killing me.”

The audience was polite and restrained while Haggerty outlined a strategy for diversifying into higher-margin products and services as the company tries to pull out of its slump.

By 2002, the company hopes desktop computer hard drives, its core business, will make up a minority of its revenues, with storage subsystems, storage management software and audiovisual consumer products generating about 60% of sales.

But those efforts to diversify are fledgling, and several competitors have adopted similar strategies.

The company has been cutting costs by farming out several functions and shifting its manufacturing facilities from Singapore to Malaysia, where labor costs are lower.

Haggerty said the cost-cutting may not be over but declined to specify areas that may be targeted.

Haggerty had announced in July that he will retire next year, and the company hopes to have a successor in place “early in the next quarter,” he said.

The company is looking at candidates from inside and outside the company, Haggerty said, although one of the leading inside candidates, former co-Chief Operating Officer Russell Stern, resigned last month to “pursue other interests.”

Haggerty, who has guided Western Digital for six years that have included periods of tremendous growth as well as the recent decline, said he was disappointed he could not preside over a more upbeat proceeding.

Indeed, one shareholder asked if there was a chance the company would file for bankruptcy.

“We have no plans for that,” Haggerty said, a response that drew a nervous laughter from the audience.