10-QPeriod: Q1 FY2003

WESTERN DIGITAL CORP Quarterly Report for Q1 Ended Sep 27, 2002

Filed November 8, 2002For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a significant improvement in financial performance for the three months ended September 27, 2002, compared to the same period in the prior year. Net revenue increased by 32% to $582.9 million, driven by a 59% rise in unit shipments, although this was partially offset by a 17% decrease in average selling prices (ASPs). The company achieved a substantial turnaround in profitability, with net income reaching $22.2 million, a stark contrast to a net loss of $557,000 from continuing operations in the prior year's quarter. This surge in income is also reflected in the earnings per share, which moved from a loss of $0.00 to an earning of $0.12 per basic share. The company also demonstrated improved liquidity, with cash and cash equivalents increasing to $244.4 million from $223.7 million at the end of the previous fiscal quarter. Operating cash flow from continuing operations saw a significant boost, reaching $45.0 million compared to $11.4 million in the prior year's quarter. Management expressed confidence in its ability to meet working capital needs through current cash balances and its senior credit facility.

Key Highlights

  • 1Net revenue increased by 32% year-over-year to $582.9 million, driven by higher unit shipments.
  • 2The company returned to profitability with a net income of $22.2 million, compared to a net loss from continuing operations of $557,000 in the prior year quarter.
  • 3Basic earnings per share improved significantly from a loss of $0.00 to an earning of $0.12.
  • 4Gross margin percentage improved to 14.3% from 12.7% year-over-year, due to higher unit shipments and cost reduction efforts.
  • 5Operating cash flow from continuing operations increased substantially to $45.0 million from $11.4 million in the prior year quarter.
  • 6Cash and cash equivalents grew to $244.4 million at the end of the quarter.
  • 7The company has terminated several new business ventures, reporting their results as discontinued operations.

Frequently Asked Questions

The primary driver for the 32% increase in net revenue to $582.9 million was a substantial 59% rise in unit shipments. However, this growth was partially moderated by a 17% decrease in average selling prices (ASPs), which is a common trend in the competitive hard drive industry.

Western Digital experienced a remarkable turnaround in profitability. The company reported a net income of $22.2 million for the quarter, a significant improvement from a net loss of $557,000 from continuing operations in the same period last year. This recovery is also reflected in the earnings per share, which shifted from a loss of $0.00 to earnings of $0.12 per basic share.

The company's liquidity position has strengthened. Cash and cash equivalents increased to $244.4 million as of September 27, 2002, up from $223.7 million at the end of the prior fiscal quarter. Furthermore, net cash provided by operating activities from continuing operations showed a significant improvement, totaling $45.0 million for the quarter, compared to $11.4 million in the prior year's quarter. Management believes these resources are sufficient to meet working capital needs.

The company is involved in ongoing legal proceedings, including a patent infringement suit filed by Papst Licensing and a breach of contract case with Cirrus Logic. While management believes that the ultimate financial impact from these matters would not be material, litigation is inherently uncertain and could potentially affect future results or liquidity. The company is actively defending itself in these matters.