Western Digital slashes 2,500 jobs in Singapore
By Bloomberg News
Special to CNET News.com
August 13, 1999, 5:25 a.m. PT
Western Digital, the world's No. 3 computer disk drive maker, said it will cut 2,500 jobs, or 60 percent of its Singapore workforce, as it moves manufacturing operations to neighboring Malaysia to trim costs.
The move, to be completed by the end of the year, will result in a one-time charge of $30 million and a "significant amount" of savings, the Irving, California-based company said, without being more specific.
The company is taking "advantage of the lower cost manufacturing environment in Malaysia to address the significant cost-competitiveness of the hard-disk drive business," John Coyne, vice president for Western Digital's Asian operations, said in a phone interview.
The move is a blow to Singapore, which churns out half of the world's computer drives by value and dubs itself the global disk drive capital. It may make companies such as Seagate Technology and IBM and other disk drive makers reevaluate their operations and future investments on the island, analysts say.
"The value-add for disk drive assembly is relatively low, so cost will be a key driver for the industry," said Pranab Kumar Sarmah, an analyst at Daiwa Institute of Research (Singapore).
That makes low-cost countries such as Malaysia attractive.
Daiwa estimates Malaysia's labor costs are about a third of Singapore's $13,671 per worker a year. Factory space costs are also far lower, with those in the Malaysian capital, Kuala Lumpur, between a quarter to half of Singapore's.
Seagate has already set up manufacturing sites in Malaysia, Thailand, and China in addition to its Singapore operations.
Losses
Western Digital's cuts come in the wake of losses after heavy price cuts in the industry. Prices for low-end disk drives have been slashed by half to about $75 a unit, analysts estimate.
For the quarter ended July 3, Western Digital lost $81.5 million or 90 cents a share--its seventh quarter of losses. Last year, it also lost market share as rivals rolled out new products, falling 5 percentage points to 13.5 percent. Seagate Technology and Quantum are the two biggest manufacturers.
"Western Digital's in a weak spot, so they have to do this quickly," Sarmah said.
The company's job cuts have been expected for some time.
Last year, the company started trimming its Singapore payroll, cutting 930 jobs and leaving it with about 4,000 workers.
The cuts announced today include 2,000 staff described as "direct," and 500 "indirect" workers, with most of the work being transferred to the company's Malaysian operations. The company defines direct employees as production workers, while supervisors make up indirect ones. Singapore and Malaysia account for all of Western Digital's production.
Western Digital shares fell 0.13 at 3.56 on Thursday. They were trading at about 21 in January this year.
For Singapore
Western Digital's cut in production will translate into a decline of about 4.5 percent for the island's disk drive exports, and a 0.8 percent drop in exports of Singapore-made products. Disk drives make up about a fifth of locally made exports.
Singapore made more than half of the world's disk drives by volume at the start of the decade. That number could fall to less than 36 percent this year, analysts said.
Singapore's Economic Development Board said it expects disk drive revenue to be little changed this year while shipments could see double-digit gains from 1998.
"The current trends for hard disk drives are price erosion, rising customer demands and rising performance expectations," the board said in a statement.
Still, Singapore's overall job market will probably be little affected by the cuts at Western. The island's total employment rose by 15,400 jobs in the second quarter of 1999, the first net gain in jobs in a year, as the island's economy recovered from recession.
Copyright 1999, Bloomberg L.P. All Rights Reserved. |
