Headquarters: 20511 Lake Forest Drive, Lake Forest
Employees: 42,000; 1,050 in OC
Business: disk drive maker
Market value as of April 1: $6 billion
Revenue for 12 months ended Dec. 31: $6.7 billion, up 38%
Net income for 12 months ended Dec. 31: $707 million, up 56%
Year in review:
Western Digital Corp. has been on a tear the past year.
Chief Executive John Coyne oversaw a big transition,growing sales from laptop PCs and external storage devices for businesses and consumers.
In the past, Western Digital relied on drives used in desktop PCs, which it mainly sold to businesses.
It’s more than doubled its share of disk drives for laptop computers in the past year, a feat analysts call “tremendous.”
For the first time, more than half of the company’s revenue comes from what Western Digital calls “non-desktop PC sources,” meaning drives for notebook PCs and consumer electronics as well as the company’s drives sold at stores.
In June, Western Digital paid $1 billion for San Jose-based Komag Inc., its biggest deal to date.
Komag makes thin-film metal disks, the part of a drive that stores data. The move gave the company the ability to make almost an entire drive on its own, without relying on outside suppliers.
The buy builds on Western Digital’s 2003 acquisition of then-bankrupt Read-Rite Corp., which makes heads that read metal disks.
The move makes Western Digital and rival Seagate Technology LLC the only two companies that develop both the disks and drive heads in-house.
What’s ahead:
Cutthroat competition among disk drive makers is set to continue. When Seagate slashes prices, Western Digital has to follow suit.
It puts the company at a big disadvantage against other competitors: Fujitsu Ltd., Samsung Corp., Hitachi Ltd. and Toshiba Corp. only get part of their revenue from drives.
And Western Digital’s biggest customers,computer makers Dell Inc., IBM Corp. and Hewlett-Packard Co.,are always pushing for price drops.
“Because disk drives are a commodity, Western Digital must succumb to these demands or risk losing the business to a competitor,” Morningstar Inc. analyst Grady Burkett said in a note.
Western Digital could see a sooner-than-expected payoff from the Komag buy, which would give a boost to profits, said Scott Craig, analyst with Banc of America Securities LLC, a unit of Bank of America Corp., in note.
Craig gives a nod to Western Digital over Seagate citing its “potential share gains in notebooks due to its technology lead and improved margins because of the faster Komag integration.”
The company and others could face a threat from drives made from flash memory rather than disks, though price remains on the side of conventional disk drive makers.
Wall Street’s Take:
Fierce competition trumps Western Digital’s big strides this year, analysts say.
“Western Digital’s low-cost strategy has helped it succeed in a brutal industry,” Morningstar’s Burkett said. “But the company might be fighting a losing battle as it more aggressively goes after Seagate.”
The Komag buy may be a blessing and a curse: “Even though the acquisition gives Western Digital control over the supply and development of its disk media, it also increases the company’s inventory, R & D; costs and capital spending,” Burkett said. “We believe these costs will more than offset the savings.”
Investors don’t seem too worried. Shares of Western Digital are up some 50% in the past 12 months.
,
Sarah Tolkoff
WHO’S IN CHARGE
JOHN COYNE
Chief executive, president, Western Digital
Joined Company:
1983
Education:
mechanical engineering degree from University College, Dublin
Career:
Before taking over as president a year ago and as chief executive in January, Coyne started Western Digital’s operations in his native Ireland, then shepherded consolidation of disk drive manufacturing in Asia for several years.
Notable:
Uses the title datuk, an honorary Malaysian term he got while working for Western Digital’s operations in Southeast Asia.
