Irvine-based Western Digital Corp. looks to be back on track after a trying end to 2011 and tenuous start to this year.
Western Digital simultaneously had to deal with the effects of a natural disaster that crippled production in Thailand and tough negotiations with regulators around the globe before finally gaining approvals for its biggest acquisition to date.
It appears both those challenges are in the rear view mirror.
“That’s a testament to the consistent execution of their company,” said Mark Moskowitz, an analyst in the San Francisco office of New York-based JPMorgan Chase & Co.
Western Digital has been the steadiest player in the hard-disk drive industry during the past 10 years. It has managed to advance its technology and meet the demands of customers while trimming material costs along the way.
“Despite the challenges, Western Digital has been the consistent exception,” Moskowitz told the Business Journal. “They’ve done it better than anyone.”
Western Digital is No. 2 on this week’s list of largest public companies based in Orange County (see List, page 12; related stories throughout issue).
Hard-disk drives store and allow access to data. Western Digital’s disk drives go into computers, external storage devices, corporate networks and consumer electronics such as DVR players.
Its crisp execution has come under especially tough circumtances 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.
Chief Executive John Coyne said in January that he expected Thailand operations to be running at full capacity by September. That’s about the same time industrywide disk drive shipments are projected to hit preflood levels, putting Western Digital in position to reap benefits from its $4.8 billion buy of San Jose-based Hitachi Global Systems Technologies Ltd.
Pent-up demand is expected to keep pressure on the industry to increase output, said John Rydning, research vice president of the hard disk drives and semiconductors division of Framingham, Mass.-based market re-searcher International Data Corp.
“We know the industry is not yet to the same product rate it was pre-flood but there has been a tremendous improvement in terms of weekly output since the beginning of March,” Rydning said.
IDC forecasts hard disk drive sales to grow 7.7% in 2012 after declining 4.5% last year. Rising demand in personal storage, servers, cloud services and data centers should offset slowed demand in the PC market—still the largest industry segment but a declining one.
Western Digital has for years relied heavily on the consumer market to drive sales. The Hitachi GST buy promises entree to the growing server and storage market, “where spending is a little more resilient,” Moskowitz said.
Hitachi recently has become an important strategic partner for server and storage manufacturers. That could prove beneficial for Western Digital, as data storage has become increasingly important with the spread of smart phones, tablets and cloud computing.
“Before the Thai flood, they were starting to take share from Seagate in a meaningful way,” Moskowitz noted.
The next two quarters bear close watching, he said, as Western Digital brings Hitachi under the fold and completely regains operations in Thailand.
“They’re 90 to 120 days ahead of schedule,” the analyst estimated. “I think they have a big red bull’s eye on Seagate.”
