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John Coyne, WD: Hard
Drive Production Resumed in Thailand
December 5, 2011
 Western
Digital updated its financial outlook for the December quarter and the
progress to date of its operations recovery effort in Thailand. The
company is also providing its view of the industry conditions for the
December 2011 quarter and beyond.
Company Fiscal Q2 Outlook:
For the December quarter, the company now expects revenue of at least
$1.8 billion and gross margins above the high end of its business model
range of 18 percent to 23 percent, and operating expenses of
approximately $265 million, exclusive of unusual charges related to the
floods, acquisition-related expenses and litigation. Unusual charges
related to the floods are expected to be in the range of $225 million to
$275 million for the December quarter, exclusive of any insurance
recovery. The company expects to file a property damage claim of at
least $50 million and an additional claim for business interruption
during the December quarter. The accounting treatment of these claims is
dependent on their status as of the end of the quarter. The company
expects acquisition related charges in the December quarter of
approximately $15 million.
The company will be vigorously contesting the arbitration decision
announced November 21, 2011, in the legal matter with Seagate and has
not yet determined the accounting treatment associated with this matter.
The company expects to maintain its net cash position flat with prior
quarter end.
Thailand Flood Recovery Effort:
"The passion, perseverance, ingenuity and execution exhibited by the WD
team has been extraordinary and enabled us to make substantial progress
in partially restoring our operations in Thailand, well in advance of
our earliest expectations when the floods hit," said John Coyne,
president and chief executive officer of WD. "Much work remains to be
done but we couldn't be more pleased with the effort and results thus
far, including tremendous support from our supply partners and strategic
customers."
Specifically, the company indicated it:
-
 Re-started
production of hard drives this week in one of its buildings in Bang
Pa-in (BPI), Thailand, one week ahead of internal schedules. This
facility had been submerged in some six feet of water since October
15, the estate was pumped dry on November 17, main power was
restored on November 26 and production restarted November 30;
- Has removed all submerged
slider manufacturing equipment from the BPI facilities for
assessment, decontamination and refurbishment and has commenced
decontamination and restoration of its remaining buildings in BPI;
- Expects to recommence head
slider production in BPI in the March 2012 quarter (Q3 FY'12) and
also begin production in a new WD slider fab location in Penang,
Malaysia, in the same time frame; and
- The company's other Thailand
hard drive facilities at Navanakorn remain under approximately two
feet of water. The industrial estate is expected to be pumped dry
within ten days at which point the work of decontamination and
refurbishment will commence.
Industry Conditions:
The company believes that hard drive industry shipments in the December
quarter will be limited to approximately 120 million units due to
production and supply constraints related to the historic flooding in
Thailand. This includes units that were in inventory at the beginning of
the quarter. The company believes that demand for the December quarter
is in the range of 170 million to 180 million units. The company
believes that significant industry supply constraints will continue in
the March quarter and beyond.
HGST Acquisition Status Update:
In connection with its planned acquisition of Hitachi Global Storage
Technologies, the company is working to satisfy the remedy provision
included in the European Commission's recent conditional approval of the
transaction and to obtain approvals from the remaining regulatory
authorities. Subject to completing these actions, the company is now
expecting to close the transaction by March 2012. |
