10-QPeriod: Q3 FY2003

WESTERN DIGITAL CORP Quarterly Report for Q3 Ended Mar 28, 2003

Filed May 9, 2003For Securities:WDC

Summary

Western Digital Corporation (WDC) reported a strong third quarter for fiscal year 2003, with significant improvements in revenue, profitability, and cash flow compared to the same period last year. Revenue increased by 19% to $705.8 million, driven by higher unit shipments due to an improved competitive position and increased demand in the personal computer market. The company also saw a substantial improvement in its gross margin percentage, rising to 17.3% from 13.6% in the prior year, attributed to a more stable pricing environment, manufacturing efficiencies, and cost reduction efforts. Operating expenses as a percentage of revenue decreased, leading to a significant increase in operating income and income from continuing operations. The company generated substantial cash flow from operations, nearly quadrupling year-over-year, and ended the quarter with a healthy cash balance. This robust financial performance reflects effective operational management and a favorable market dynamic for Western Digital's core hard drive business.

Key Highlights

  • 1Revenue increased by 19% year-over-year to $705.8 million for the third quarter.
  • 2Gross margin percentage improved significantly to 17.3% from 13.6% in the prior year's comparable quarter.
  • 3Operating income saw a substantial increase, reflecting improved revenue and cost management.
  • 4Net income from continuing operations grew significantly to $54.5 million, up from $22.1 million in the prior year.
  • 5Cash flow from operations was strong, with a $236.5 million increase for the nine-month period, indicating healthy operational performance and working capital management.
  • 6The company ended the quarter with a solid cash position of $347.1 million.
  • 7Convertible debentures were fully redeemed, simplifying the company's capital structure.

Frequently Asked Questions

The revenue increase was driven by a 19% rise in net revenue to $705.8 million. This was primarily due to an increase in total unit shipments to 10.3 million units, up from 8.1 million in the prior year's comparable quarter. This growth was attributed to Western Digital's improved competitive position and a rising demand for hard drives in the personal computer market.

Profitability improved significantly due to a higher gross margin percentage, which rose to 17.3% from 13.6% in the prior year's quarter. This improvement was primarily a result of a more moderate pricing environment, manufacturing efficiencies gained from higher unit volumes, and ongoing cost reduction efforts. Additionally, operating expenses as a percentage of revenue decreased, further bolstering profitability.

Western Digital ended the quarter with a strong cash and cash equivalents balance of $347.1 million, up from $223.7 million at the end of the prior fiscal year. The company generated substantial cash flow from operations, with a $164.3 million improvement for the nine-month period compared to the prior year. Management believes its current cash reserves are sufficient to meet its working capital needs for the foreseeable future.

The company is involved in two significant legal proceedings. One is a patent infringement lawsuit filed by Papst, which has been transferred and is currently stayed pending related litigation. The company is vigorously defending itself, but a potential loss cannot be reasonably estimated at this time. The second is a breach of contract lawsuit filed by Western Digital Technologies, Inc. against Cirrus Logic, Inc., concerning read channel chips. This case has seen complex motions and continuances, with a trial date set for December 2003. A potential loss from this litigation also cannot be reasonably estimated. Management believes that any ultimate liability from other routine legal proceedings would not be material.