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Expected Profit Marks Milestone in Western Digital Rebound

Expected Profit Marks Milestone in Western Digital Rebound

Matthew Massengill, Chairman, chief executive, president

Western Digital Corp.

By ANDREW SIMONS

It’s not every day someone stops a ship from sinking. Matt Massengill, chief executive of Lake Forest-based disk drive maker Western Digital Corp., seems to have done it.

Since Massengill took over Western Digital two years ago from longtime chief Charles Haggerty, he has done what some analysts see as a masterful job of stopping losses and finding markets beyond computers for the company’s drives.

Last month, West-ern Digital said it expects to post its first profit in three years for the quarter ended Dec. 28. Since 1998, the company has racked up a collective operating loss of more than $1 billion as it fought a price war, lost market share to rivals and restructured itself.

“The thing that stands out most is turning the whole company profitable,” Massengill said. “Not only the hard drive business,we made new ventures profitable that weren’t profitable.”

Last year, Western Digital started to see a profit in its core drive business, which had been reeling from an industry glut and declining personal computers sales. New deals,including one to supply drives to Microsoft Corp.’s Xbox video game console and another with Dell Computer Corp.,have been key.

Wall Street has noticed. The company’s shares are up 170% in the past year. Last week, Western Digital counted a market value of about $1.1 billion.

Moreover, Western Digital has outpaced many of its peers. Since Sept. 11, Western Digital’s shares are up nearly 135% while rival Maxtor Corp.’s shares have come back only 47%. Quantum Corp.’s are up just 23%.

Where analysts used to shake their heads at Western Digital’s problems, they now talk about a turnaround.

“Western Digital’s execution continues to improve and the company’s competitive position is strengthening” wrote Wit Soundview analyst Glenn Ingalls in a recent report. “We are more optimistic about the stock’s prospects now than we have been at any point in the last several years.”

When Massengill took over in January 2000, Western Digital was retreating from a costly move into the market for high-end drives for servers and other business computers.

The retrenchment and slowing computer sales forced Massen-gill to lay off nearly 400 employees, close a Minnesota plant and shift production from Singapore to Malaysia. Massen-gill also moved Western Digital out of its high-rent Irvine Spectrum digs to Lake Forest.

Under Massen-gill, Western Digital set up other businesses in a bid to diversify away from PCs, where price cuts squeezed drive profits.

Among the offshoots are SageTree Inc., which makes supply chain management software, and Keen Personal Media Inc., which makes set-top box products.

Last year Western Digital sold two internal startups for a combined $35 million: SANavigator Inc., a maker of software that helps manage storage networks, and Connex Inc., a designer of network storage products.

Soft spoken and even-tempered, Massengill began his career at Western Digital in 1985 as a product engineer. He held various engineering and marketing positions before he was named vice president of marketing for the personal storage division in 1994.

Three years later, Massengill was named senior vice president and general manager of the enterprise storage group,the now defunct maker of high-end drives. In June 1999, Massengill was appointed executive vice president of worldwide operations. Four months later he took over as chief operating officer.

Western Digital’s pact to make drives for Microsoft’s Xbox game console is one of Massengill’s key feats. Rival Seagate Technology Inc. also is making Xbox drives.

The deal could be lucrative for Western Digital. Microsoft estimates it sold nearly 1 million Xbox consoles this holiday season and that it will sell 5 million in 2002. After Xbox enters more markets, the number is expected to double, though Microsoft hasn’t commented on numbers beyond 2002.

“The Xbox was a huge effort,” Massengill said.

As it is, Xbox and cost-cutting measures had Massengill and other company executives eyeing break-even or a small profit in the December quarter. But new signs of life in the company’s PC drive business and Fujitsu Ltd.’s exit from desktop drives have provided an added boost.

When Western Digital reports earnings on Jan. 24, the company is expected to post sales of about $550 million, up from an earlier projection in the $500 million range, and a profit of about $7.5 million.

The company also said last month it plans to buy a 155,000-square-foot desktop drive plant in Thailand from Fujitsu. The plant is set to start rolling out Western Digital drives in the spring.

“We are just getting warmed up,” Massengill said.

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