Orange County Business Journal

Western Digital Beats on Revenue, Profits

Chris Casacchia Thursday, April 26, 2012

Irvine-based disk drive maker Western Digital Corp. on Thursday reported revenue and earnings in the March quarter that beat Wall Street expectations and said its heavily damaged operations in Thailand can now meet supply demands.

The company reported revenue of $3 billion, up 36% from a year earlier.

Analyst on average had forecast revenue of $2.4 billion.

Adjusted profits topped $619 million, up 297% from a year ago.

Wall Street had expected an adjusted profit of $364 million.

The strong performance includes partial gains from its recent $4.8 million acquisition of San Jose-based Hitachi Global Storage Technologies Ltd., which finalized March 8.

The Hitachi GST buy promises entree to the growing server and storage market. That could prove beneficial for Western Digital, as data storage has become increasingly important with the spread of smart phones, tablets and cloud computing.

The company shipped 44.2 million hard drive units in the March quarter, down from 51 million a year earlier, or 13%.

That’s an improvement over the December quarter, when Western Digital shipped 28.5 million units.

The company’s disk drives go into computers, external storage devices, corporate networks and consumer electronics.

It appears most of the challenges the company faced in the last six months are in the rear-view mirror.

“I am also pleased to announce today that the recovery activities related to both WD operations and those of our supply chain partners impacted by the Thailand floods have reached a point where we now have the capability to adequately meet anticipated customer demand in the current quarter and beyond," Chief Executive John Coyne said.

Its crisp execution has come under especially tough circumstances since October, when the company was forced to shut down two of its plants in the Bangkok area that were severely damaged in one of the worst floods to hit the region in decades.

Thailand is the world’s second-largest producer of disk drives behind China, and also a major supplier of hard drive components. Western Digital ships about 60% of its disk drives from Thailand, where it has 37,000 employees.

By December the company had reopened some operations there. That prompted at least three brokerages to raise price targets on Western Digital’s stock, as analysts concluded the company would recover lost market share quicker than expected.

Cupertino rival Seagate Technology LLC overtook Western Digital in disk drive unit sales in the fourth quarter. That ended a two-year run of market share lead for Western Digital.

Investors overlooked the strong quarterly results and sent Western Digital shares down 7% in afterhours trading to a market value of about $10.3 billion.

They may have grasped on to remarks Coyne made during a conference call with analysts that ended minutes ago, when he briefly intimated the company projected a $550 million expense this quarter related to research and development, and general administrative costs.

That would be a nearly 31% increase from the $420 million it spent on those costs in the March quarter.