Western Digital, a leading maker of hard disk drives and the owner of Komag company that specializes on manufacturing on platters for hard disk drives, announced that starting from May, 2008, it would cease to supply its rivals with platters and will also restructurize WD Media company (the new name of Komag).
"This action sizes our media and substrate operation to the current demands of a single customer-WD's hard drive business. It efficiently streamlines our media and substrate operations while enhancing focus on the development of future manufacturing technologies to support media and substrate requirements resulting from continued success in our hard drive business," said Don Blake, vice president and general manager of WD Media.
At present WD Media supplies its high-density platters for hard disk drives to Hitachi Global Storage Technologies and Seagate Technologies. However, as the obligations of Komag will be fulfilled by May, 2008, WD will cease to provide platters to its competitors. The decision will hardly impact Hitachi and Seagate substantially as there are more suppliers capable o f producing leading-edge platters, however, it will most certainly allow Western Digital to boost its market share and improve profitability going forward.
As part of the realignment of media manufacturing resources, the company will focus its Penang, Malaysia facilities solely on the production of magnetic media, while substrate plating and polishing operations, currently in Penang, will be consolidated into the company's two other Malaysian substrate facilities in Kuching and Johor Bahru, maximizing operational efficiencies. Additionally, some positions in the company's San Jose, California development and media operations facility will be affected with the cessation of external business. As a result of these actions, WD will reduce its labor force by approximately 800 employees - approximately 770 in Malaysia and approximately 30 in the United States - representing less than 2% of the company's total worldwide employee population of approximately 42 500.
The total cost of these actions is currently estimated to be approximately $16 million, including termination benefits and asset impairment charges. The portion of these costs, if any, that will be charged against the company's third quarter operating results and the portion, if any, that will be reflected as an adjustment to the Komag acquisition purchase price allocation is still being determined and will be separately disclosed during WD's third quarter earnings release conference call in April. This realignment is consistent with the integrated media operations business model guidance previously provided by the company.