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WD Lays Out Plan for Global Consolidation

Western Digital Corp. will close three manufacturing plants and cut 1,900 jobs in Asia in a move that shifts more production to its sprawling Silicon Valley operation and elsewhere.

The Irvine-based storage products maker plans to close a 644,000-square-foot media production facility in Singapore and move those operations to Penang, Malaysia, and Shenzhen, China, where it owns and leases nearly 1.2 million square feet of space for hard drive manufacturing, other manufacturing, and administrative departments.

It will transfer its head slider production in Penang, where it runs a 1-million-square-foot plant, to facilities in BangPa-In, Thailand, and Laguna, Philippines.

The company earlier this year closed its 513,000-square-foot head wafer manufacturing facility in Odawara, Japan, and transferred that operation to a 392,000-square-foot facility in Fremont and its hub in San Jose, where it owns and leases more than 3.2 million square feet to handle the new wafer production, as well as other product lines, product development, research and development, administrative, marketing and sales.

“In response to an ever-changing industry, Western Digital is continually evaluating and transforming our business to ensure we deliver value to customers and remain competitive,” company spokesman Steve Shattuck told the Business Journal in an emailed statement.

“We currently are implementing actions to enhance manufacturing efficiencies of our integrated global operations.”

The moves come amid tepid global demand for hard disk drives—one of WD’s largest sources of revenue—and its integration of both SanDisk Corp. and HGST.

Hard drive sales in the June quarter fell to the lowest level in nearly five years.

It sold 40.1 million hard drive units in the last quarter, down from 43.1 million units in the April quarter and the lowest volume since the December 2011 quarter when it sold 28.5 million units.

The 2011 low point came after WD suspended hard drive production at its plant outside the Thai capital of Bangkok, following a heavier-than-usual monsoon season punctuated with floods.

The company didn’t regain full operations for almost a year in Thailand, which accounted for about 60% of its disk drive production at the time.

The company’s hard disk drives, which use spinning disks to store data, go into computers, external storage devices, corporate networks and consumer electronics.

Declining Demand

Sagging global PC sales are at the root of the latest drop, as PC shipments in the second quarter fell to 64.3 million units, down 5.2% from a year earlier, according to Gartner Inc. It was the seventh straight quarter of global PC shipment declines.

Gartner projects PC shipments this year to decline 1% from last year, when global sales totaled 288.7 million units, marking the first time they fell below 300 million units since the depths of the recession.

The world’s largest disk drive maker has made strides to diversify its product lineup over the years, highlighted by its record $17 billion acquisition in May of Milpitas-based SanDisk.

The buy more than doubles its market opportunities to $76 billion while boosting higher-margin business lines in solid-state drives and the booming data analytics, digital video, cloud computing and data center storage segments.

Non-PC hard disk drives, which include those geared for gaming and enterprise customers, accounted for nearly 52% of its total hard drive sales in the June quarter.

Integration Savings

The SanDisk buy followed Chinese regulators finally approving its $4.8 billion integration of HGST—acquired from Hitachi in March 2012—which includes factories around the globe and 41,000 employees. The long-waited approval will lead to annual operating expense savings of about $475 million, with additional unknown savings on costs of goods sold.

The combined integration, handled by a 200-member WD team, is projected to lead to $1.1 billion in savings by 2020.

SanDisk entered the year with 4,133 employees in operations, 3,125 workers in research and development, 938 employees in sales and marketing, and 594 employees in general and administrative positions. 

Product diversification and ongoing integration helped WD post sales of $3.5 billion in the most recent quarter, up 9.5% from the same period a year ago.

Sales in the 12 months through June—the end of its fiscal year—dropped nearly 11% to about $13 billion, compared to the prior year. Adjusted profits dropped 33% to $1.2 billion.

The company’s shares got a nice bump last week—up 12% to a $15 billion market cap—after WD raised revenue targets this quarter by about $50 million to $4.45 billion, and adjusted profits per share by 15% to $1.

Reductions, Realignment

WD’s restructuring plan, which will be completed by the end of next year, consists of asset and property reductions, consolidating product development and realigning corporate structure.

The company in the last two years has reduced about 20% of its real estate holdings and shed roughly a quarter of its global work force to 72,878 through June.

Thousands of more cuts are likely.

“We have additional plans to reduce that further,” Chief Executive Steve Milligan said late last month in an analyst conference call.

Western Digital could eliminate as much as a third of its total work force from two years ago, according to Milligan. That would be an additional 15,000 or so jobs, according to figures from its annual report.

“We have been very aggressive over a period of time of taking capacity out, both in the form of brick and mortar as well as in terms of head count, to react to the decline that we have seen in the hard drive market,” he said.

WD’s Cupertino rival, Seagate Technology PLC, is cutting 6,500 jobs from its global operation over the next year. 

While WD’s local operation hasn’t felt the brunt of job cuts, it has shed about 204 jobs here in the 12 months through May, or roughly 10.7% of the Irvine campus at Park Place, according to Business Journal research.

That same month the Business Journal reported WD was slashing nearly 100 jobs in Orange County—81 in Irvine and 18 in Santa Ana—as it integrated the SanDisk buy.

The recent local cuts followed a restructuring plan initiated last year that eliminated 180 positions, mostly in the U.S., and primarily in California, that affected engineers, managers and administrative personnel.

The ongoing integration has led to more than 500 job cuts in California alone, with its Silicon Valley outposts in Fremont and San Jose—the former U.S. headquarters for HGST—accounting for 408 job losses in recent months, according to filings with California’s Employment Development Department.

“We take these actions seriously and with careful consideration,” Shattuck said. “All affected employees receive severance and placement counseling. Where possible, we investigate opportunities for employees to seek employment at other facilities.”

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