10-QPeriod: Q2 FY2002

WESTERN DIGITAL CORP Quarterly Report for Q2 Ended Dec 28, 2001

Filed February 8, 2002For Securities:WDC

Summary

Western Digital Corporation (WDC) reported improved financial results for the quarter ended December 28, 2001, compared to the same period in the prior year. Net income rose to $12.6 million, or $0.07 per diluted share, from $3.6 million, or $0.02 per diluted share, in the prior year's quarter. This improvement was driven by a 2% increase in revenues to $574.7 million, supported by a 25% rise in unit shipments, though partially offset by an 18% decrease in average selling prices (ASPs). The company also demonstrated improved cost management, with total costs and expenses as a percentage of revenue decreasing to 98.3% from 99.6%. The six-month period also showed a significant turnaround, with net income of $33.1 million compared to a net loss of $31.9 million in the prior year. Revenues for the six months increased by 3% to $1.016 billion. The company successfully managed its new business ventures, reducing operating losses in this segment, and also benefited from a substantial gain on the disposal of discontinued operations (Connex and SANavigator businesses) which contributed significantly to the six-month profitability. The company ended the period with a healthy cash position and believes its current liquidity is sufficient for its needs.

Key Highlights

  • 1Net income for the three months ended December 28, 2001, was $12.6 million, a substantial increase from $3.6 million in the prior year's quarter.
  • 2Diluted earnings per share (EPS) for the quarter improved to $0.07 from $0.02 in the prior year.
  • 3Total revenues for the quarter increased by 2% to $574.7 million, driven by a 25% increase in unit shipments.
  • 4The company achieved a significant turnaround in its six-month results, reporting net income of $33.1 million compared to a net loss of $31.9 million in the prior year.
  • 5Operating losses from new business ventures decreased, indicating successful expense reduction efforts in these areas.
  • 6A gain of $24.5 million was recognized from the disposal of discontinued operations (Connex and SANavigator businesses) during the six-month period.
  • 7Cash and cash equivalents increased to $193.3 million at the end of the period, and the company stated its belief that current cash and credit facilities are sufficient for future needs.

Frequently Asked Questions

The improved profitability was driven by a combination of increased unit shipments, improved cost management resulting in lower total costs as a percentage of revenue, and successful reduction of operating losses from new business ventures. Additionally, a significant gain from the disposal of discontinued operations contributed substantially to the six-month results.

While unit shipments increased by 25% for the quarter, the average selling prices (ASPs) decreased by 18% compared to the same period last year. This indicates a challenging pricing environment in the hard drive industry.

The company has made efforts to reduce operating losses in its continuing new business ventures. The Connex and SANavigator businesses have been discontinued, and substantially all their assets were sold, resulting in a gain of $24.5 million recognized during the six-month period ended December 28, 2001.

Western Digital reported $193.3 million in cash and cash equivalents at December 28, 2001. The company also has a $125 million Senior Credit Facility available. Management believes its current cash and credit facilities are sufficient to meet its working capital needs through the foreseeable future.