Western Digital to Close High-End Drive Plant
In a cost-cutting effort, troubled Western Digital Corp. said Wednesday that it will stop manufacturing hard drives for high-end computers and shut down the Minnesota plant that makes them.
The Irvine disk-drive maker, the industry’s third largest, also said its losses for the last three months will be less than the $100 million analysts had predicted. It expects to report quarterly results Tuesday.
The news somewhat eased jitters that the company could not survive as an independently run operation for much longer.
“The big question has been, ‘When is Western Digital going out of business?’ ” said Bill Lewis, an analyst for Hambrecht & Quist. “These moves remove some doubt about their staying power. They’re setting up for the long haul.”
Western Digital went into the high-end market in 1994, seeing the potential for wider profit margins in drives used in high-speed servers and computer workstations. Sales of these products accounted for about 11% of the company’s $2.8 billion in revenue for its last fiscal year.
But the company concluded it was losing ground to Seagate Technology Inc. and International Business Machines Corp.
“Our market share has been declining, and this is an increasingly competitive market,” spokeswoman Brenda Bennett said.
Analysts noted that Matthew E. Massengill, named Western Digital’s new president and chief executive last week, had overseen the high-end drive operation at one time and had an inside perspective on its viability.
“Long term, getting out of the high end limits their upside, but it’s probably a safer path,” said Dane Lewis, a senior analyst at Robertson Stephens.
Western Digital will take a special charge in its fiscal third quarter, ending March 31, to reflect the costs of closing its high-end hard-drive design center in Rochester, Minn. The company expects to fire most of the 420 employees there.
Bennett said the company will focus instead on creating data-storage products for companies moving onto the Internet.
“We’re going to focus on high-growth areas with no established leaders,” she said.
Western Digital’s move comes after eight consecutive quarters of heavy losses totaling almost $1 billion as a brutal price-cutting war hurt all hard-drive manufacturers.
Western Digital’s fortunes took an additional $20-million blow when the company had to recall about 870,000 faulty hard drives in September.
The price war eased somewhat in recent months, and demand for the products increased, analysts said. Western Digital’s November and December sales rose 11% over the same period last year, Bennett said.
The company’s stock, buoyed slightly in recent days, had sunk from a high of almost $52 a share in August 1997, to just under $3 in November. It rose $1.56 Wednesday to close at $6.69 a share.
