Western Digital Corp., one of the world’s largest producers of hard disk drives, said on Wednesday that as a result of softer demand for its products it would have to take a series of actions in order to reduce its operating costs. Among those actions, WD will have to cut down production of hard drives as well as headcount and also lower capital spending.
Demand for hard drives in the December quarter is significantly below the expectations outlined in the company's original revenue guidance range of $2.025 billion to $2.150 billion, issued on October 23. Industry pricing is also significantly more competitive than forecasted. WD now expects revenue for the December quarter to be in the range of $1.7 billion to $1.8 billion, with a consequent reduction in operating results. The demand and pricing environment during the remainder of the month of December will be critical in determining the company's operating results for its second fiscal quarter of 2009.
“In the current macro economic climate, we expect demand weakness to last well into the middle of the 2009 calendar year. Consequently, we are taking additional steps to immediately reduce production capacity and operating expenses on a longer-term basis across our entire business as we approach the seasonally weaker second half of our fiscal year,” said president and chief executive officer of WD John Coyne.
The company has taken action throughout the quarter to adjust supply to industry demand and is taking further action to align inventories with anticipated short-term demand by temporarily halting the majority of its manufacturing operations from December 20 through January 1, 2009, inclusive.
In order to further reduce costs, Western Digital will reduce headcount by approximately 2500, or 5% worldwide; reduce manufacturing work hours by approximately 20% from reduced use of temporary workers; closure of one of WD’s three manufacturing facilities in Thailand; close or dispose of one of the company’s two media substrate manufacturing facilities in Malaysia; reduce capital spending for the fiscal year 2009 from $750 million to approximately $500 million.
“We are taking these actions in order to strengthen our financial position and enhance the ability of our business to withstand an extended period of depressed demand while continuing to invest in the technologies, products and processes required to assure the continued success of our business,” Mr. Coyne added.
These actions, which the company anticipates completing by the end of March 2009, are expected to result in total charges of approximately $150 million which will be incurred across the December and March quarters. These charges will consist of asset impairment charges of approximately $90 million, employee termination costs of approximately $35 million and other exit costs of approximately $25 million. Approximately $60 million of these charges will be cash expenditures. The savings generated are expected to amount to approximately $150 million annually.