10-QPeriod: Q2 FY2001

WESTERN DIGITAL CORP Quarterly Report for Q2 Ended Dec 29, 2000

Filed February 12, 2001For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a net income of $1.788 million for the three months ended December 29, 2000, a significant turnaround from a net loss of $15.197 million in the same period of the prior year. This improvement was primarily driven by a reduction in costs and expenses, including lower cost of revenues and a substantial decrease in restructuring charges compared to the prior year. The company also saw its operating loss narrow considerably, from $88.4 million to $9.6 million year-over-year for the quarter. Despite a slight decrease in overall net revenues for the quarter ($530.7 million vs. $560.2 million in Q4 1999), the company's strategic shift, including exiting the enterprise hard drive market and focusing on desktop drives and new ventures, appears to be showing positive signs in terms of profitability. The balance sheet reflects a reduction in convertible debentures and an increase in shareholders' equity, indicating some deleveraging and improved financial health compared to the previous fiscal year.

Key Highlights

  • 1Reported a net income of $1.788 million for the three months ended December 29, 2000, compared to a net loss of $15.197 million in the prior year's quarter.
  • 2Operating loss significantly narrowed to $9.6 million for the quarter, down from $88.4 million in the prior year.
  • 3Total costs and expenses decreased by approximately 16.7% for the three-month period compared to the prior year.
  • 4Restructuring charges were eliminated, contributing to the improved profitability.
  • 5Revenues for desktop drives increased year-over-year for the quarter due to higher unit shipments, though overall net revenues saw a slight decline.
  • 6The company continued to reduce its convertible debentures through exchanges for common stock.
  • 7Shareholders' equity turned positive, increasing from a deficiency of $109.8 million at June 30, 2000, to a positive $15.7 million at December 29, 2000.

Frequently Asked Questions

The primary driver for the improved financial performance was a significant reduction in costs and expenses. This included lower cost of revenues, reduced research and development and selling, general, and administrative expenses, and the absence of significant restructuring charges compared to the prior year's period. The company also benefited from a narrower operating loss.

For the three months ended December 29, 2000, net revenues slightly decreased to $530.7 million from $560.2 million in the prior year's quarter. However, revenues from desktop drives specifically increased due to higher unit shipments, offsetting the impact of exiting the enterprise drive market. New business ventures had not yet generated significant revenue.

The company has been actively reducing its convertible debentures, with the book value decreasing from $225.5 million on June 30, 2000, to $113.2 million on December 29, 2000. Importantly, shareholders' equity has shifted from a deficiency to a positive balance of $15.7 million as of December 29, 2000, indicating an improved financial position.

The company is involved in several legal proceedings, including ongoing appeals and potential patent infringements. However, in each case disclosed, the company states that it does not believe the outcome will have a material adverse effect on its consolidated financial position, results of operations, or liquidity. The company is also defending against a class-action lawsuit filed by former employees.