WD HDD Production Partly Resumes in Thailand

Western Digital Corp. is updating its financial outlook for the December quarter and the progress to date of its operations recovery effort in Thailand. The company is also providing its view of the industry conditions for the December 2011 quarter and beyond.

Company Fiscal Q2 Outlook:
For the December quarter, the company now expects revenue of at least $1.8 billion and gross margins above the high end of its business model range of 18 percent to 23 percent, and operating expenses of approximately $265 million, exclusive of unusual charges related to the floods, acquisition-related expenses and litigation. Unusual charges related to the floods are expected to be in the range of $225 million to $275 million for the December quarter, exclusive of any insurance recovery. The company expects to file a property damage claim of at least $50 million and an additional claim for business interruption during the December quarter. The accounting treatment of these claims is dependent on their status as of the end of the quarter. The company expects acquisition related charges in the December quarter of approximately $15 million.

The company will be vigorously contesting the arbitration decision announced November 21, 2011, in the legal matter with Seagate and has not yet determined the accounting treatment associated with this matter.

The company expects to maintain its net cash position flat with prior quarter end.

Thailand Flood Recovery Effort:
"The passion, perseverance, ingenuity and execution exhibited by the WD team has been extraordinary and enabled us to make substantial progress in partially restoring our operations in Thailand, well in advance of our earliest expectations when the floods hit," said John Coyne, president and chief executive officer of WD. "Much work remains to be done but we couldn’t be more pleased with the effort and results thus far, including tremendous support from our supply partners and strategic customers."

Specifically, the company indicated it:

Re-started production of hard drives this week in one of its buildings in Bang Pa-in (BPI), Thailand, one week ahead of internal schedules. This facility had been submerged in some six feet of water since October 15, the estate was pumped dry on November 17, main power was restored on November 26 and production restarted November 30;
Has removed all submerged slider manufacturing equipment from the BPI facilities for assessment, decontamination and refurbishment and has commenced decontamination and restoration of its remaining buildings in BPI;
Expects to recommence head slider production in BPI in the March 2012 quarter (Q3 FY’12) and also begin production in a new WD slider fab location in Penang, Malaysia, in the same time frame; and
The company’s other Thailand hard drive facilities at Navanakorn remain under approximately two feet of water. The industrial estate is expected to be pumped dry within ten days at which point the work of decontamination and refurbishment will commence.

Industry Conditions:
The company believes that hard drive industry shipments in the December quarter will be limited to approximately 120 million units due to production and supply constraints related to the historic flooding in Thailand. This includes units that were in inventory at the beginning of the quarter. The company believes that demand for the December quarter is in the range of 170 million to 180 million units. The company believes that significant industry supply constraints will continue in the March quarter and beyond.

HGST Acquisition Status Update:
In connection with its planned acquisition of Hitachi Global Storage Technologies, the company is working to satisfy the remedy provision included in the European Commission’s recent conditional approval of the transaction and to obtain approvals from the remaining regulatory authorities. Subject to completing these actions, the company is now expecting to close the transaction by March 2012.