WD financial platters spinning slower

Quarterly profit 95 per cent down

Western Digital's financial platters are spinning markedly more slowly. Profits in its fiscal 2009 second quarter, which ended on 26th December 2008, more than halved from the year-ago quarter to $123m, and were then almost obliterated by a restructuring charge to just $14m. At least it was a profit.

The gory details are Q2 fy09 revenues of $1.82bn, down from the year-ago quarter's $2.2bn and also down from Q1 fy09's total of $2.1bn. As with Seagate and others, demand in the final three months of 2008 seemed to simply evaporate, particularly in December. Net income for WD in Q2 fy09 was $14m ($0.06/share) compared to Q2 fy08's $305m ($1.35/share) and Q1 fy09's $211m ($0.93/share).

There was a $113m restructuring charge and a $4m tax benefit. Excluding those WD's net income would have been $123m ($0.55/share) which is still awful but not as dire as $14m. Still, the company beat Wall St estimates of quarterly revenues of $1.75bn.

Restructuring is not free, and WD bit that bullet in December when it announced a near five per cent head count cut, meaning 2,500 unlucky employees, and executive pay cuts, measures more or less followed by competitor Seagate which went further and changed its CEO. It wouldn't be fair to say that turmoil has returned to the hard drive industry with these hard times, although Fujitsu is getting out and questions remain over Samsung's future involvement.

Both WD and Seagate have been affected by the worsening recession as consumers and businesses stopped buying HDD-using kit and the demand for drives rapidly shrank in the last three months of 2008.

WD shipped 35.5m drives in the quarter, an advance on the previous quarter's 31.4m, but that cut no ice as the price per drive dropped, a factor that also affected Seagate. In Q1 fy09 WD's average selling price per drive was $66.88 and this dropped to $51.27 in Q2 fy09.

The company revealed that it "shipped 13.8 million 2.5-inch mobile drives and 4.1 million 3.5-inch units for the PVR/DVR market, compared with 8.7 million and 4.1 million units a year ago, respectively. Branded products accounted for 22 per cent of hard drive revenue in the December quarter (Q2 fy09) compared with 18 per cent in the year-ago quarter."

Thus the consumer market for hard drives in video recorder and external drive/add-in drive form swelled in the quarter compared to a year ago, confirming the expected trend.

WD CEO John Coyne said the company is intent on "investing in next-generation product platforms and technologies during this downturn. We are focused on maintaining our leadership in technology deployment, ease-of-use features, and availability of the right products for our diversified customer base. We remain enthused about our long-term prospects."

Overall the company is in good shape. It has its highly popular Velociraptor drives and it's pipped Seagate to the post with the industry's first 2TB drive. It apparently wanted to announce that with its results yesterday, but its channel is a leaky and ineffectively-policed vessel where such products are concerned, and the news got out before it should.

WD is hurting from the recession, but it's only a flesh wound and no serious damage has been caused. It's not about to spin off course. ®

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