Huge Restructuration at Western Digital

Western Digital Corp. announced a series of actions to realign its cost structure with a softer demand environment and revised its revenue outlook for its second fiscal quarter ending December 26, 2008. Demand for hard drives in the December quarter is significantly below the expectations outlined in the company’s original revenue guidance range of $2.025 billion to $2.150 billion, issued on October 23. Industry pricing is also significantly more competitive than forecasted. WD now expects revenue for the December quarter to be in the range of $1.7 billion to $1.8 billion, with a consequent reduction in operating results.

The company has taken action throughout the quarter to adjust supply to industry demand and is taking further action to align inventories with anticipated short-term demand by temporarily halting the majority of its manufacturing operations from December 20 through January 1, 2009, inclusive.

"In the current macro economic climate, we expect demand weakness to last well into the middle of the 2009 calendar year," said president and chief executive officer John Coyne. "Consequently, we are taking additional steps to immediately reduce production capacity and operating expenses on a longer-term basis across our entire business as we approach the seasonally weaker second half of our fiscal year."

Specifically, these additional actions include:

• Reductions in compensation of the company’s executive officers, board of directors, and senior management;
• A reduction in worldwide headcount of approximately 2,500 people or five percent of the total workforce;
• A reduction in manufacturing work hours of approximately 20 percent from reduced use of temporary workers, reduced shift overtime and employee attrition;
• Closure of one of the company’s three hard drive manufacturing facilities in Thailand;
• Closure or disposal of one of the company’s two media substrate manufacturing facilities in Malaysia; and
• A reduction in capital spending for the fiscal year 2009 from $750 million to approximately $500 million.

These actions, which the company anticipates completing by the end of March 2009, are expected to result in total charges of approximately $150 million which will be incurred across the December and March quarters. These charges will consist of asset impairment charges of approximately $90 million, employee termination costs of approximately $35 million and other exit costs of approximately $25 million. Approximately $60 million of these charges will be cash expenditures. The savings generated are expected to amount to approximately $150 million annually.

Coyne said: "We are taking these actions in order to strengthen our financial position and enhance the ability of our business to withstand an extended period of depressed demand while continuing to invest in the technologies, products and processes required to assure the continued success of our business."

As is typical, the demand and pricing environment during the remainder of the month of December will be critical in determining the company’s operating results for its second fiscal quarter of 2009.