In case you haven’t noticed, investors are taking a shine to an old-school technology company: Western Digital Corp.
Shares of the Lake Forest-based company are up more than 25% during the past month on the strength of the industry and moves by the hard drive maker itself.
After reporting profits had doubled during the quarter ended Sept. 30, Western Digital said it planned to buy back $150 million in shares.
That announcement followed buybacks of about $87 million, or 8.8 million shares, since May of 2004.
“Our sustained strong financial performance has allowed us to generate substantial amounts of free cash flow,” said Chief Executive Arif Shakeel, in a statement.
Shakeel took over the company Oct. 1 as chief executive, succeeding Matt Massengill, who now is executive chairman.
Late last month, the company raised revenue estimates for the quarter ending Dec. 30 to a range of $1.04 billion to $1.08 billion, up from a prior estimate of $1.03 billion to $1.08 billion. It also boosted adjusted earnings estimates to a range of $77.7 million to $84.12 million, up from a previous estimate of $71.2 million to $77.7 million.
Western Digital’s profit margins are expected to be 18.1%,higher than analysts’ expectations.
The company said demand is growing for many of its drives, including its key desktop and laptop products.
“Pricing in all segments of its business has been better than expected and the company has continued to make improvements in manufacturing cost efficiencies, leading to better than expected gross margin performance,” the company said in a recent regulatory filing.
A few days after raising estimates, the company got an upgrade from Bear Stearns & Co. The investment bank now rates Western Digital shares “peer perform,” up from a prior rating of “underperform.”
“Due to stronger demand for desktop/notebooks …. disciplined pricing and continued tight media supply (the) industry conditions are clearly strengthening,” wrote Bear Stearns analyst Andrew Neff.
Neff also raised his rating on some Western Digital competitors, including Seagate Technology in Scotts Valley and Maxtor Corp. of Milpitas.
Neff nevertheless issued a warning to the disk drive makers. He said they must keep their discipline and not over-produce once the year’s final quarter,typically very strong,ends.
Western Digital was one of the first companies to announce it would pull back on production in the fourth quarter.
Housing Crunch
When I sat down for an interview with Broadcom Corp.’s Scott McGregor a few weeks ago, I asked him what his biggest challenges are.
The chief executive of the Irvine-based chipmaker didn’t say growing competition in the semiconductor industry or Sarbanes-Oxley.
Instead, he gave an answer I’m hearing more and more: the high price of homes here.
“I think the housing costs in Orange County are intimidating to a lot of people,” McGregor said. “They’re just not going to get what they had in Texas or Boston.”
And it doesn’t help that Broadcom’s other large stable of U.S. engineers are up in Silicon Valley, where housing costs aren’t exactly low either.
For now, though, the company has been able to find people who are willing to move to OC.
McGregor said he continues to search for the best talent, no matter where they are.
“We look all over the planet,” he said.
Still, it’s not going to get any easier to attract people to OC.
The median price of a home sold here in October was $701,520, 12.8% higher than a year ago, according to the California Association of Realtors. Although that median price is 1% lower than in September, it’s hardly affordable for many mid-income earners.
Statewide, the median price of an existing home sold in October fell 1% to $538,770, compared to September, but was up 17.2% from a year ago.
The percentage of people considered wealthy enough to afford a home in OC fell to 11% in September, compared to 13% a year earlier.
High housing costs are hurting recruiting efforts at the technology startups as well, said John Morris, chairman of Tech Coast Angels, a network of early-stage investors in Southern California.
Young companies often lack the cash to pay the kinds of salaries needed to attract the best workers, he said.
