WESTERN DIGITAL CORP. (WDC) 21 1/8 CLOSED. Sounding like a broken record, this disk-drive maker is warning again about its upcoming results as increased competition in the disk-drive market is continuing to squeeze margins. Accordingly, its announcement could again put pressure on the sector, although the pricing problems that Western Digital is continuing to experience are well known within the group. Western Digital announced today a series of actions designed to lessen its exposure to sustained oversupply and higher-than-normal competitive pricing pressures in the hard drive industry's distribution channel. Western Digital plans to take an $85-$95 million charge in the 2Q ending in December, an increase from between $15 to $30 million previously announced due to its accelerated transition from production of drives with thin film heads. It also plans to exit the 3-inch portable hard drive business and reduce production of desktop hard-drives from previously announced levels as it seeks to further accelerate the transition to magneto-resistive head technology. Given these changes and charges, the company now expects to post a break-even 2Q and only a modestly profitable full-year results. Prior to today's warning, Western Digital was projected to earn $0.25 a share in the 2Q and $1.63 a share for the full-year ending in June of 1998, according to the First Call estimates. In the year-ago 2Q period, it earned $0.68 a share, and $0.67 a share in the period just ended in September. For the 1997 fiscal year, it earned $2.85 a share. Hence, the near term outlook is rather bleak for this disk-drive maker, but with the stock already trading near its low of $19 5/8, the downside may be somewhat limited. Nonetheless, expect the stock to come under some selling pressure this morning, which could spill-over to other disk-drive stocks, as the sector continues to feel the pain of overcapacity.
Sam, I'm wondering if there is a winner coming out of this? They say the sector continues to feel the pain, but I wonder if the "pain" is also a product of WDC's poor planning by not shifting to MR fast enough as many had predicted?
They say they will reduce desktop production, and take further losses on the MR shift. If they can't compete in desktop, how can they compete in enteprise? They will probably be doing some serious dumping to get inventory levels down. Any ideas how much inventory they have left? I suppose all makers with inventory are seeing paper losses as the prices fall.
Theoretically, WDC cuts production and someone will increase production of more desired MR based desktop drives? Are we seeing unit demand slowing?
It's an interesting situation and the whole sector is being painted over WDC's problems which are systemic, but also internal. Where is the crux of this problem? Will the others come out of it better off?
What about component suppliers? Seems like they should be pretty stable.
Regards,
Mark |
