10-QPeriod: Q1 FY2002

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Sep 28, 2001

Filed November 13, 2001For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a significant turnaround in its financial performance for the quarter ended September 28, 2001, compared to the same period in the prior year. The company shifted from a substantial net loss of $35.5 million in Q3 2000 to a net income of $20.5 million in Q3 2001. This improvement was driven primarily by the core hard drive business, which saw increased revenues, improved gross profit margins due to cost reductions and higher volumes, and a significant reduction in operating losses. Key to this recovery was the successful divestiture of its Connex and SANavigator businesses, which resulted in a substantial gain on disposal. While the company faces ongoing industry challenges such as intense competition, short product life cycles, and declining average selling prices, the recent financial results and strategic initiatives suggest a path towards profitability. The company's liquidity position remains solid with substantial cash and cash equivalents and an available credit facility.

Key Highlights

  • 1Achieved net income of $20.5 million for the quarter, a significant improvement from a net loss of $35.5 million in the prior year's comparable quarter.
  • 2Revenues increased by 4% to $440.9 million, driven by a 6% increase in unit shipments.
  • 3Gross profit margin improved to 12.7% from 6.1%, attributed to cost reduction efforts and higher volumes in the hard drive business.
  • 4Successfully completed the divestiture of its Connex and SANavigator businesses, recognizing a gain of $24.5 million.
  • 5Reduced its operating loss from continuing operations to $4.0 million from $35.6 million year-over-year.
  • 6Maintained a strong liquidity position with $200.6 million in cash and cash equivalents as of September 28, 2001.
  • 7The company's cash conversion cycle improved, becoming more negative, indicating better working capital management.

Frequently Asked Questions

The primary drivers for the substantial improvement in net income were the strong performance of the core hard drive business, which saw increased revenues and improved cost efficiencies leading to higher gross margins, and the gain recognized from the sale of discontinued operations (Connex and SANavigator businesses). The company also reduced its operating losses from continuing operations significantly.

Western Digital operates in a highly competitive hard drive industry characterized by short product life cycles, intense price competition, and declining average selling prices. Key risks include the ability to stay at the forefront of technology and time-to-market, managing costs effectively, dependence on key customers and suppliers, and potential litigation related to intellectual property.

As of September 28, 2001, the company reported $200.6 million in cash and cash equivalents and had a positive working capital. It also has access to a $125 million revolving credit facility. The company believes these resources are sufficient to meet its working capital needs, supported by ongoing cost reductions and improved operational performance.

The discontinuation and sale of the Connex and SANavigator businesses resulted in a gain of $24.5 million for the quarter ended September 28, 2001. The prior year's results included a loss from these discontinued operations, which has been reclassified. This strategic move streamlines the company's focus on its core hard drive business.