It’s been a good run for Matt Massengill as chief executive of Lake Forest-based disk drive maker Western Digital Corp.
Still, the company hasn’t said exactly why the 44-year-old Massengill, who’s been with the company off and on since the 1980s, decided to step down as chief executive, effective Oct. 1.
Massengill is set to stay on as executive chairman “and in relationships with shareholders and other strategic constituents,” according to a Western Digital statement.
Arif Shakeel, Western Digital’s chief operating officer and Massengill’s right-hand man, is set to become chief executive.
Massengill has overseen a turnaround of Western Digital, boosting production in Asia and going after new markets, including drives for consumer electronics and portable computers.
In the past year, the company’s shares have nearly doubled, outpacing rivals Seagate Technology and Maxtor Corp.
Little wonder Massengill’s step back raised a few eyebrows on Wall Street and has analysts wondering why.
“That’s what everyone is asking,” said Mark Miller, of Minneapolis-based Craig-Hallum Capital Group LLC. “People were surprised.”
Some have speculated the move could be out of good corporate governance. Massengill holds both the chairman and chief executive titles now. Many companies have split the duties in the wake of Sarbanes-Oxley accounting reform.
But analysts also are quick to note that Western Digital already has a highly independent board and gets good marks for corporate governance.
Massengill is a favorite on Wall Street. He’s known as a consummate handler of investor concerns and a shrewd operations man. He’s left his mark on Western Digital.
Last year, the company started making portable computer drives again. Western Digital made portable drives in the early 1990s but exited the market by 1997 amid competition from IBM Corp. and Toshiba Corp., which made drives for their own portable computers.
The bulk of Western Digital’s drives go into desktop computers, where profits are slim.
Massengill, a longtime Western Digital engineer who became chief executive in 2000, led a sea change at the company. He took the view that drives were commodities to be cranked out at big factories in Malaysia and Thailand, and not complex products in need of big research spending.
Western Digital has spent millions on plants in Asia. In 2002, the company bought a Thailand drive plant from Japan’s Fujitsu Ltd., which exited the business. A year later, it picked up another Thailand plant with its buy of bankrupt Read-Rite Corp.
Massengill has brought other changes. Last year, the company changed its logo from “Western Digital” to WD. As the company does more business abroad, Massengill said he thought the former logo could confuse buyers.
For all of Western Digital’s gains of recent years, Massengill has been quick to credit Shakeel. The 50-year-old executive has been with Western Digital since the mid-1980s and was elected a director last year.
He becomes the second executive of Pakistani descent to lead a major Orange County company after Safi Qureshy, chief executive of now-defunct AST Research, in the 1990s.
Shakeel has been chief operating officer at Western Digital since 2001. Massengill is said to have run Western Digital closely with Shakeel.
Giving Shakeel the chief executive title could be a way for Massengill and Western Digital to keep him from leaving for a top role at another company.
Massengill still will be getting executive-level compensation. He’ll be drawing an $800,000 salary,the same one he’s drawing as chief executive.
At the same time, he’ll receive an annual bonus equal to his entire base salary, according to filings with the Securities and Exchange Commission.
Shakeel’s set to be paid $800,000 a year, up from his current $700,000, and get 1.25 million shares of restricted stock. He’ll also be eligible for a bonus worth 100% of his salary.
Massengill joins another prominent executive chairman in OC. Greg Weaver, former chief executive of Anaheim-based Pacific Sunwear of California Inc., stepped back earlier this year and is laying plans for a new chain of stores for the retailer.
Weaver is paid a $400,000 base salary as executive chairman, down from about $800,000 as chief executive.
Western Digital’s shares slipped about 6% last week, after the company announced the executive shift on Aug. 25. They’ve since gained back some ground.
The company faces a tough road ahead, according to analysts.
“They’re trying to get into the mobile market and that’s going to be a very competitive market,” Miller said. “Seagate has a technology lead.”
Recent research reports suggest prices for portable computers are falling, which stands to squeeze Western Digital and other components makers.
Even so, other analysts said they think the executive transition likely will be smooth.
“Massengill will retain the position of executive chairman (which precludes him from accepting employment elsewhere),” wrote Daniel J. Renouard of Milwaukee-based Robert W. Baird & Co. “We believe he will remain actively engaged in assuring a smooth transition. We do not suspect Mr. Massengill’s decision reflects anything other than a desire to retire.”
As for Shakeel, Renouard wrote that with his “intimate knowledge of the company, and exceptional operational success over the past four years, we are confident in his ability to continue driving solid execution in the CEO role.”
