Category Archives: Western Digital Corp.

Western Digital Corp. – Company View

A statement by John F. Coyne, President and Chief Executive Officer of Western Digital is given below. The statement has been taken from the company’s 2007 annual report.

Fiscal 2007 was another strong year for Western Digital, demonstrating the flexibility and consistency of our efficient business model. Customer satisfaction with WD’s broad product line, superior quality and reliability, service excellence and a solid overall value proposition continue to drive our business growth.

The fiscal 2007 performance provides further evidence of steady financial results and continued excellence in execution by the WD team:

  • Revenue in fiscal 2007 was $5.5 billion, an increase of 26 percent from last year.
  • Earnings per share of $2.50 compared with $1.76 per share in fiscal 2006, a 42 percent increase.
  • We generated over $600 million in cash from operations during fiscal 2007, a 68 percent improvement over 2006, and ended the year with $907 million of cash and short-term investments, an increase of 30 percent over the prior fiscal year.
  • Fiscal 2007 represented our fifth consecutive year of substantial growth in our research and development and capital spending to support a significant deepening and acceleration of our technology capability and a broadening of our product portfolio. Over the five-year period, we have grown our investment spending 270 percent, from $170 million in fiscal 2002 to $630 million in fiscal 2007.
  • While maintaining our focus in the high-volume desktop market, we have made major strides in growing our footprint in non-traditional markets such as 2.5-inch notebook drives, branded products, consumer electronics (CE) and Serial ATA (SATA) drives for the enterprise space.
  • We more than doubled our 2.5-inch drive shipments, year-over-year, to 12.3 million units.
  • Revenue from Branded Products grew by over 180 percent year-over-year to more than $870 million as we established an industry-leading position in a market segment that surged to prominence as consumers began taking seriously the need to backup and remotely access their valuable digital content.
  • In Enterprise SATA, the fastest growing segment of enterprise storage, we led the industry in introducing 3.5-inch SATA solutions in 2003. Our share in this segment is now similar to our position in the desktop and CE markets.
  • As a result of this activity in newer markets, we have seen our revenue from non-desktop PC drives expand to 43 percent of revenue in fiscal 2007, compared with 29 percent in fiscal 2006 and we exit the year with almost 50 percent of revenues derived from non-desktop applications.

Reflecting the continued return on our technology investments, we introduced and shipped an impressive array of new products in fiscal 2007; many of them based on new technology platforms:

  • We began our fiscal year by launching two major product platform transitions: 160 GB-per-platter 3.5-inch drives and 80 GB-per-platter 2.5-inch drives. Both transitions have been important to our business and the basis of multiple high-quality, highly reliable products. The 2.5-inch platform was our first to implement perpendicular magnetic recording (PMR); the next generation of hard drive technology that will continue propelling storage capacities for years into the future.
  • These platforms resulted in 160 GB WD Scorpio® drives for notebooks, 160 GB WD Passport® portable USB drives; more efficient 500 GB WD Caviar® desktop drives; as well as the My BookTM family of dual-drive storage devices offering one terabyte (TB) of capacity for consumers’ photos, music and video content.
  • Later in the year, WD introduced two innovative Branded Products storage appliances. The first was a simple My Book appliance that featured the newest, highest performance interface for external devices: external SATA (eSATA). The My Book Premium ES EditionTM external hard drive helps consumers increase performance and avoid technology obsolescence.
  • In February 2007, we launched what is now the flagship of our growing family of Branded Products: the My Book World EditionTM external storage system. This unique product enables consumers to access the data stored on it from anywhere in the world. It connects to a home network, and through a secure connection over the Internet, consumers can create, open, play and edit files as if those files were residing on their computer— even if they are physically thousands of miles away from their My Book World Edition external storage system. In July 2007, we acquired the assets of Senvid Corporation, maker of the innovative MioNet® software that enables the unique remote access and sharing capabilities of our My Book World Edition products.
  • With the growing market for digital video recording (DVR) applications— both consumer and commercial—WD introduced a new product brand: WD AVTM. The company for years has sold special-order hard drives with special feature sets designed specifically for use in DVRs. The market and customer base for these products have grown to a level that they are best served with a specialized product and through our broad distribution network. Recently, we introduced three new technology platforms:
  • 125 GB-per-platter 2.5-inch series of products, resulting in a WD Scorpio hard drive with 250 GB capacity;
  • High-performance 3.5-inch platform, offering up to 750 GB; and,
  • The first line of 3.5-inch drives designed primarily to reduce power consumption and help protect our environment: GreenPowerTM hard drives.

We believe the new WD Scorpio drive is the first 2.5-inch 250 GB notebook drive to hit the market in volume. It’s our fourth generation 2.5-inch and second generation utilizing PMR, and incorporates proprietary WD head technologies, as well as significant feature innovation. One of the first applications for our new WD Scorpio hard drive is in Branded Products, where WD Scorpio has been quickly integrated into the fourounce, quarter-terabyte WD Passport portable drive.

Our first 3.5-inch WD Caviar drives that implement PMR produce up to 750 GB and have a unique combination of WD features that reduce power, operate at low temperatures and offer high shock and vibration tolerance. Off the same platform are the WD RE2TM drives, which offer enterprise customers three-quarters of a terabyte for high-duty cycle applications such as servers and capacity-intensive network storage. Our Branded Products team leveraged the new capacity with a family of cavernous dual-drive 1.5 TB My Book products.

Newly introduced to Branded Products’ lineup was the My DVR ExpanderTM external DVR storage, which solves a growing consumer need for massive capacity to manage high-definition TV entertainment. This plug and play device adds as many as 60 hours of high-definition recording or up to 300 hours of standard-definition TV programming to widely installed cable set-top box DVRs.

This is a great time to be involved in the global hard drive industry. Applications for hard drives continue to proliferate in both computing and consumer markets as both workplace and lifestyle changes continue to generate massive volumes of content to be stored securely, conveniently and cost effectively on hard drives.

  • The hard drive market in 2006 generated revenues in excess of $30 billion with 435 million hard drives shipped; forecasted demand for 2007 exceeds 500 million units.
  • On a unit basis, the hard drive market is looking at a five-year CAGR of approximately 13 percent.
  • The strongest growth segments are expected to be Enterprise SATA, forecasted for nearly 40 percent growth, 3.5-inch CE at more than 30 percent, 2.5-inch notebook and 2.5-inch CE each above 20 percent.
  • Branded Products, a category which has surged to industry prominence in the last year, is forecasted to grow at a rate of 25 percent over the next five years as consumers and increasingly mobile workers continue to seek intuitive, well-designed external storage appliances to securely store and access their digital content.

At WD, we are very excited about these numerous opportunities for growth, both for the near term, and as we address the longer-term prospects represented in these industry forecasts.

We have taken important steps to ensure our continued success in addressing these outstanding market opportunities.

  • We have made and continue to make investments in the technologies and infrastructure that will enhance our ability to compete as a full-line industry leader, with the product portfolio required to capitalize on these growth trends and the capacity and cost structure to do so efficiently and profitably.
  • Our previously announced plan to upgrade and expand our Fremont, California wafer facility is underway. Our first 8-inch pilot line is expected to be in production by the end of calendar 2008.
  • Our recent acquisition of Komag Incorporated, a leading media supplier, is a very important strategic step that we believe will deliver significant advantages and synergies over the long term as we vertically integrate media into our operations.

Shortly after the end of fiscal 2007, we announced another significant WD initiative: The industry’s first line of 3.5-inch drives designed primarily to reduce power consumption and help protect the environment—WD’s GreenPower hard drives.

Our one-terabyte drive introduces this new product category. Many of our customers have been asking for low-power drive technology. The GreenPower drives have been designed specifically to reduce power consumption far below other 3.5-inch drives on the market today—as much as 40 percent less than one terabyte drives available from competitors. WD Branded Products now includes My Book appliances incorporating this technology that can store 2 TB of music, photos, video and other content.

Subsequent applications for WD’s GreenPower drive technology will emerge in CE and the enterprise. Large enterprise data centers employing GreenPower drive technology will save hundreds of thousands of dollars annually in electricity costs and will reduce carbon emissions by thousands of metric tons. We are very excited about the opportunities our customers will have to reduce energy costs and minimize their impact on the environment.

Our business strategy to efficiently produce reliable, high-quality hard drives for a growing, worldwide market continues. This approach distinguishes us in a competitive industry. It also provides value to our customers and allows us to achieve consistent financial performance.

With this proven approach, we aim to hold and build our leadership position in traditional markets and grow our presence in newer markets.

We are excited by the continuing, outstanding opportunities for growth in storage demand and are confident that the WD team values of Passion, Action, Productivity, Perseverance, Innovation, and Integrity will continue to drive profitable growth for the company and create value for all our stakeholders as we address those opportunities in the years ahead.

Western Digital Corp. – Locations and Subsidiaries

Head Office
Western Digital Corp.
20511 Lake Forest Drive
Lake Forest
California 92630 7741
USA
P:1 949 672 7000
F:1 949 672 5408
http://www.westerndigital.com

Other Locations and Subsidiaries

Western Digital 206 Military Road North Sioux City South Dakota 57049 USA

Western Digital

3600 West Parmer Lane

Suite 160

Austin

Texas 78727

USA

Western Digital

North Suburban Business Center

23 Walkers Brook Drive

Suite 11

Reading

Massachusetts 01867

USA

Western Digital

15109 Normandy Boulevard

Bellevue

Nebraska 68123

USA

Western Digital 2635 Butternut Lane Cleveland Ohio 44124 USA

Western Digital

Northern California Sales Office

44100 Osgood Road

Fremont

California 94539

USA

Western Digital 401 Corbett Street Suite 250A Belleair Florida 33756 USA

Western Digital Pasadena Maryland 21122 USA

Western Digital HK (Beijing Office)

Room 2009

Quanta Office Building

Number 27 ZhiChun Road

Hai Dian

Beijing 100083

CHN

Western Digital Hong Kong

Room 2609 S

hui On Centre

Wanchai

8 Harbour Road

HKG

Western Digital Japan

AIOI Sonpo Shinjuku Building

13 F 25 3 Yoyogi 3 Chome

Shibuya ku

Tokyo 151 0053

JPN

Western Digital (Malaysia) Lot 3 Jl SS 8/6 Sungei Way FIZ 47300 Petaling Jaya MYS

Western Digital (South East Asia)

152 Beach Road

13 01 The Gateway East

Singapore 189721

SGP

Western Digital Korea

Room 606

City Air Tower

159 9 Samsung dong

Kangnam Gu

Seoul 135 090

KOR

Western Digital Taiwan Company

6 F Room 606

205 Tun Hwa North Road

Taipei 105

TWN

Western Digital (Thailand) Company

60 90 2 Navanakorn Industrial

Estate Zone 3

Phaholyothin Road Moo 19

Klongnueng

Pathumthani 12120

THA

Western Digital (CZ)

Rybna 14

CZ 11005 Prague 1

CZE

Western Digital (Russia) Office 302 Delovoy Center 61 2 Stroyenie 1 Perovskaya Ulitsa 111394 Moscow RUS

Western Digital France

Parc Club Orsay Universite

Batiment N

3 Rue Jean Rostand

F 91893 Orsay Cedex

FRA

Western Digital (Germany) Karl Hammerschmidt Street 40 D 85609 Dornach bei Munchen DEU

Western Digital Netherlands

Western Digital (UK)

Uiverweg 2

Prime House

NL 1118 DS Schiphol Zuid

Challenge Court

NLD

Barnett Wood Lane

Leatherhead

Surrey KT22 7DE

GBR

Western Digital Corp. – Top Competitors

The following companies are the major competitors of Western Digital Corp.

  • Fujitsu Limited
  • Toshiba Corporation
  • Hitachi Global Storage Technologies
  • Samsung Electronics Co., Ltd.
  • Seagate Technology Inc

Western Digital Corp. – SWOT Analysis

Western Digital designs, develops, manufactures and markets hard disk drives.The company’s hard disk drives are used in desktop personal computers (PCs), enterprise servers, network attached storage devices; consumer electronics products such as video game consoles, personal/digital video recorders, and satellite and cable set-top boxes; and as external storage devices. The company’s improving financial performance in the last few years has enabled it to strengthen investor confidence. However, intense competition would lower the prices and affects the profitability and market share of the company.

Strengths

Strong financial performance

Western digital has recorded strong financial performance over the past few years. The company’s total revenue has grown at a compounded annual growth rate of 19% to reach $5,468 million in fiscal 2007 from $2,719 million in fiscal 2003. Western Digital’s operating income increased from $187 million in fiscal 2003 to $415 million in fiscal 2007, representing a CAGR of 22%.The company’s net income increased from $182 million in fiscal 2003 to $564 million in fiscal 2007, growing at a CAGR of 33%.Western Digital recorded better operating and net income margins over its competitors. In fiscal 2007, the company recorded operating and net income margin of 7.6% and 10.3%. In the same fiscal year, Toshiba, a competitor of the company recorded operating and net income margin of 3.6% and 2.2%. Similarly, Fujitsu, another competitor of the company, recorded operating and net income margin of 3.6% and 2.3% in fiscal 2007.

The company’s cash from operating activities has increased from $101 million in fiscal 2003 to $402 million in fiscal 2007, representing a CAGR of 41% for the five year period. Western Digital has also recorded comparatively higher returns than its competitors. In fiscal 2007, the company recorded return on assets (ROA), return on equity (ROE), and return on capital employed of 22.6%, 39.3%, and 23.4%, respectively. For the same fiscal year, Toshiba and Fujitsu recorded ROA, ROE, ROC of 2.6%, 13%, and 8.3% and 2.6%, 10.9%, and 8.5%, respectively. Strong revenue growth and cash flows indicate better financial position, and helps the company build investor confidence.

Broad product portfolio
Western Digital is a provider of hard drives for various markets like desktop, mobile, enterprise, and consumer electronics.The company’s offerings for the desktop users include popular drives like WD Caviar 7,200 RPM drives, available in both EIDE and Serial ATA (SATA) interfaces. 10,000 RPM WD Raptor X is the only hard drive in the world that has a see-through window. WD Scorpio hard drives form the high performance drives in the mobile line.

In the enterprise storage segment, Western Digital offers WD Raptor, the world’s only 10,000-RPM SATA hard drives. The WD RE enterprise series and WD Raptor offer high performance, reliability and capacity for network attached storage devices, storage area networks, workstations, medical imaging, gaming and video/broadcast applications. In the consumer electronics devices, Western Digital products include video-streaming drives catering to the users of digital video recorders requiring large capacity for video streaming of TV shows and movies. Broad product portfolio provides cross selling opportunities and insulates the company from decline in demand in any particular segment.

Weaknesses


Customer concentration

Western Digital generates significant amounts of revenues from a limited number of customers. In the fiscal 2007, the company generated more than 10% of its total revenues from Dell, its single largest customer. During 2007, 2006 and 2005, Dell accounted for 10%, 12%, and 16%, respectively, of the company’s total revenue. In fiscal 2007, Western Digital recorded 47% of its total revenues from top 10 customers.

Dependence on limited number of customers for large proportion of its revenues increases the business risk of the company. Loss of significant customers would not only affect the company’s results of operation but also its market share.

Declining research and development (R&D) investment

The R&D investments of Western Digital have been declining over the past few years. Though the company’s investment in R&D in absolute terms has increased from $135 million in fiscal 2003 to $306 million in fiscal 2007, its R&D spend as a percentage of total revenues has declined from 6.6% in 2004 to 5.6% in fiscal 2007. By contrast, Seagate, a competitor of the company spent 8.7% of the total revenue as R&D investment. Toshiba, another competitor of the company has recorded slightly higher investments of around 6% of the total revenues as R&D spend.

Declining investment in R&D indicates lower attention towards development of technology and new products, which is likely to have an adverse impact on the future competitiveness of the company. Lack of competitiveness would adversely affect the business operation and market share of Western Digital.

Weak internal controls

The company’s involvement in certain litigations indicates instances of weak internal controls. In fiscal 2006, the company initiated a review of historical stock option grants, which brought out several derivative actions file on behalf of the company. These actions were against certain current and former directors and executives of the company with the company as a nominal defendant. These actions claim violation of certain sections like 10(b), 14(a) and 20(a) of the Securities Exchange Act, accounting, breach of fiduciary duty and/or aiding and abetting, constructive fraud, waste of corporate assets, unjust enrichment, rescission, breach of contract, violation of the California Corporations Code, abuse of control, gross mismanagement, and constructive trust in connection with the company’s option granting practices.These complaints seek monetary damages and reforms to the company’s governance.Weak internal controls would affect the investor confidence on the company.

Opportunities

Strategic acquisition

Western Digital has made a significant acquisition in the recent period. The company acquired Komag, a manufacturer of hard drives, in September 2007. The company has strategic intention of integrating its research and development activities in the US and its manufacturing facilities in Malaysia and Thailand with those of its new partner, creating an improved value chain and cost effective model.Through the acquisition of Komag, the company is also planning to integrate media in the hard drives. Successful integration of the acquisition would enable the company create effective supply chain and strengthen its revenue streams.

New facilities

Western Digital is planning to expand its facilities in the US. In October 2007, the company signed a multi-year lease for its planned hard drive design center in Longmont, Colorado. The company is working towards making the center operational. Through the new facility, the company is planning to ensure continued growth in its engineering capabilities. Expanding design centers enables the company to focus more on the new technologies and enhance its product offerings.

New products

Western Digital has launched several new products in the recent period. In November 2007, the company announced its new environmentally friendly, GreenPower family of WD enterprise hard drive products. The WD RE2 GreenPower (GP) hard drive is in capacities of 500 gigabytes (GB),

750 GB and one terabyte (TB), and provides cost savings to the organizations dealing with large data. This new drive caters to the information technology challenges like total available drive slots, maximum capacity, and available power and budget. These products have power saving as their primary focus and deliver 40% savings in hard drive power consumption.

In September 2007, the company launched My Book, external storage solutions to suite specific users. These solutions were made available in My Book Home, My Book Office, and My Book Essential Editions in capacities ranging from 320 GB to 1 TB. Earlier the company has released MY Book storage appliances in capacities of 2TB in view of increasing digital content. New products launches would provide the company with opportunities to add new customers and enhance its market share.

Threats

Intense competition

Western Digital operates in intensely competitive technology equipment markets. In the hard drive industry, suppliers compete for sale of HDDs to limited number of large customers. Most of the products in the industry are highly substitutable as they are used in compliance with certain technical standards. High substitutability poses difficulties in product differentiation.

Hard drive manufacturers compete on the basis of product quality, reliability, storage capacity, unit price, product performance, production volume capabilities, delivery capability, leadership in time-to-market, time-to-volume and time-to-quality, and service and support.The company’s products are differentiated based on operational excellence, high product quality and reliability, and designing and incorporating into hard drives desirable product performance attributes rather than on storage capacity, buffer size or time-to-market.

Some of the hard drive manufacturers with whom the company competes include ExcelStor Technology, Samsung Electronics Incorporated, Fujitsu Limited, Seagate Technology, Hitachi Global Storage Technologies, and Toshiba Corporation. Increasing competition lowers the prices and affects the profitability and market share of the company.

Declining average selling prices

The hard drive industry has been experiencing declining average selling prices over the past few years. Prices of the hard drives are increasing owing to various factors like decreasing production costs,liquidation of excess inventories and attempts to gain market share. Average selling prices (ASP) also decline when there is a shift in the mix of product sales, and sales of lower priced products increase relative to those of higher priced products. Continued decline in the industry ASPs would lead to the same in the company’s ASPs, affecting its operating profits.

Patents

Western Digital is dependent on numerous copyrights, trademarks, patents and related commitments to protect its intellectual property rights. In spite of the careful procedures and ownership of several US and international patents, the company is involved in intellectual property related litigations. For instance in January 2007, Texas based StorMedia filed a complaint against the company and several other drive manufacturers alleging infringement of a patent (US Patent No. 6,805,891). Western Digital answered the complaint denying allegations and asserting affirmative defenses, and has also filed counterclaims against StorMedia. Such litigations would impose financial obligations on the company. Any unfavorable outcomes in the patent related litigations claiming damages would adversely affect the reputation and financial position of the company.

Western Digital Corp. – Revenue Analysis

Overview
Western Digital recorded revenues of $5,468 million during the fiscal year ended June 2007, an increase of 26% over 2006. For the fiscal year 2007, Asia, the company’s largest geographic market, accounted for 33.7% of the total revenues.

Western Digital generates revenues through single business divisions: hard drives business.

Revenue by Geography
Asia, Western Digital’s largest geographical market, accounted for 33.7% of the total revenues in the fiscal year 2007. Revenues from Asia reached $1,840 million in 2007, an increase of 18.7% over 2006.

United States accounted for 32.6% of the total revenues in the fiscal year 2007. Revenues from United States reached $1,780 million in 2007, an increase of 28.4% over 2006.

Europe, the Middle East and Africa accounted for 29.1% of the total revenues in the fiscal year 2007. Revenues from Europe, the Middle East and Africa reached $1,591 million in 2007, an increase of 29.9% over 2006.

Other accounted for 4.7% of the total revenues in the fiscal year 2007. Revenues from Other reached $257 million in 2007, an increase of 42.8% over 2006.