10-KPeriod: FY2007

WESTERN DIGITAL CORP Annual Report, Year Ended Jun 29, 2007

Filed August 28, 2007For Securities:WDC

Summary

Western Digital Corporation (WDC) reported strong revenue growth in fiscal year 2007, reaching $5.5 billion, a 26% increase from the previous year, driven by robust unit shipments and a strategic shift towards non-desktop markets. While the company saw an increase in operating income, its gross margin percentage declined to 16.5% from 19.1% in fiscal year 2006, attributed to typical technology price declines and increased market competition. WDC's commitment to research and development remains strong, with R&D expenses totaling $306 million in 2007, supporting the development of new product platforms and advanced technologies. A significant development during the fiscal year was the announcement of the definitive agreement to acquire Komag, Incorporated for approximately $1.0 billion. This strategic move aims to enhance production efficiencies and integrate media manufacturing into WDC's operations, strengthening its vertical integration strategy. The company also demonstrated a healthy cash flow from operations, increasing to $618 million in 2007, and ended the year with a solid cash position of $907 million, indicating sound financial management and liquidity to support ongoing operations and strategic initiatives.

Key Highlights

  • 1Fiscal year 2007 revenue reached $5.5 billion, a 26% increase year-over-year, driven by a 33% rise in unit shipments to 97 million.
  • 2The company is strategically diversifying its revenue streams, with non-desktop sources accounting for 43% of revenue in fiscal 2007, up from 29% in fiscal 2006.
  • 3Gross margin percentage decreased to 16.5% in fiscal 2007 from 19.1% in fiscal 2006, impacted by price declines and competitive market conditions.
  • 4Research and Development expenses increased slightly to $306 million in fiscal 2007, reflecting continued investment in new product development and advanced technologies.
  • 5Western Digital announced a definitive agreement to acquire Komag, Inc. for approximately $1.0 billion to enhance vertical integration and production efficiencies.
  • 6Cash flow from operations improved significantly, reaching $618 million in fiscal 2007, up from $368 million in fiscal 2006, bolstering the company's liquidity.
  • 7The company ended fiscal year 2007 with $907 million in cash and short-term investments, a healthy increase from the prior year.

Frequently Asked Questions

Western Digital's primary business is the design, development, manufacture, and sale of hard drives. The company is strategically diversifying its revenue beyond traditional desktop computers into consumer electronics, enterprise applications, notebook computers, and its own branded external storage solutions.

In fiscal year 2007, Western Digital experienced significant revenue growth and improved cash flow from operations. However, gross margins declined due to competitive pricing and technology cost reductions. The company's liquidity remains strong, and it is actively investing in R&D and strategic acquisitions.

The planned acquisition of Komag, Inc. for approximately $1.0 billion is a strategic move by Western Digital to achieve greater vertical integration. By acquiring a media manufacturer, WDC aims to strengthen its production efficiencies, enhance its manufacturing processes, and potentially gain better control over critical component supply and technology development.

Key risks include declining average selling prices (ASPs) in the highly competitive hard drive industry, the need to adapt to evolving market demands and technological advancements, potential oversupply and intense price competition, and risks associated with international manufacturing operations and global supply chains. The company also faces risks related to its planned Komag acquisition, including integration challenges and potential failure to realize expected benefits.