10-KPeriod: FY2003

WESTERN DIGITAL CORP Annual Report, Year Ended Jun 27, 2003

Filed September 23, 2003For Securities:WDC

Summary

Western Digital Corporation (WDC) reported strong financial performance for the fiscal year ended June 27, 2003, demonstrating significant growth and improved profitability. Net revenue increased by 26% to $2.7 billion, driven by a substantial increase in unit shipments and a recovery in the average selling price (ASP) after a period of decline. This top-line growth, combined with effective cost management and manufacturing efficiencies, led to a dramatic improvement in operating income, which rose by 268% to $187 million. The company also generated substantial cash flow from operations ($281 million) and ended the year with a strong cash position of $393 million. A key strategic development during the year was the acquisition of substantially all assets of Read-Rite Corporation, a major supplier of heads, for $170-$180 million. This vertical integration move aims to enhance operational flexibility and ensure future access to head technologies, although it is expected to incur initial start-up costs. The company also successfully retired all its convertible debt, strengthening its balance sheet.

Key Highlights

  • 126% increase in net revenue to $2.7 billion in fiscal year 2003.
  • 2Operating income surged by 268% to $187 million, with operating margins expanding to 6.9%.
  • 3Market share in hard disk drives increased to an estimated 17% from 13% in the prior year.
  • 4Generated $281 million in cash flow from operations, ending the year with $393 million in cash and cash equivalents.
  • 5Acquisition of Read-Rite Corporation's assets to enhance operational flexibility and secure access to head technologies.
  • 6Successfully retired all outstanding convertible debt, improving financial leverage.
  • 7Continued focus on efficiency improvements, cost control, and working capital management.

Frequently Asked Questions

Revenue growth was primarily driven by a 26% increase in net revenue to $2.7 billion, resulting from a significant increase in unit shipments (up to 39.7 million) and an improvement in the average selling price (ASP) per unit to $68 from $74 in the prior year. The company also benefited from an improved market share and increased demand in the hard drive market, particularly within the desktop PC segment.

Profitability saw a substantial increase due to a combination of factors. Stronger revenue growth, coupled with rigorous cost control and manufacturing efficiencies, led to a significant expansion of gross margins to 16.3% from 13.1% in the previous year. Operating expenses were managed effectively, decreasing as a percentage of net revenue to 9.4% from 10.7%. This resulted in a 268% increase in operating income to $187 million.

The acquisition of substantially all of Read-Rite Corporation's assets, including wafer fabrication and slider manufacturing facilities, represents a strategic move towards vertical integration. This aims to enhance Western Digital's operational flexibility, secure direct access to future head technologies, and potentially improve long-term gross margins as these acquired assets are integrated. While it involves upfront investment and potential short-term start-up costs, it is intended to strengthen the company's competitive position in head technology and manufacturing.

The company demonstrated strong financial health and liquidity. Cash and cash equivalents increased by $170 million to $393 million. Net cash provided by continuing operations was robust at $281 million, a significant improvement from the prior year, reflecting enhanced operating performance and effective working capital management. The retirement of all convertible debt also improved the balance sheet and reduced interest expenses.