Western Digital Cuts 2,500 Jobs, Scales Back Operations

Weak demand for hard drives is expected to continue into next year, the company says

December 20, 2008

2 Min Read
Network Computing logo

Western Digital Corp. (NYSE: WDC), the world second-largest maker of hard drives, says demand for its products has weakened significantly and that its revenue for the second quarter ending Dec. 26 will be below expectations. As a result, the company says it will lay off 2,500 workers, or 5 percent of its workforce, cut executive pay, and shut down some of its factories during the holidays.

The news comes a week after competitor Seagate Technology Inc. (NYSE: STX) announced that its revenues for the current quarter would be below expectations and that it would shut down its U.S. facilities from Dec. 22 until after New Year's Day in a cost-cutting move. Seagate said it expects revenues of $2.3 billion to $2.6 billion for its second quarter ending Jan. 2. The company had previously predicted revenues for the quarter to hit around $3.05 billion. Analysts had been predicting $2.9 billion.

Western Digital has forecast revenues of $1.7 billion to $1.8 billion for the current quarter. Analysts surveyed by Reuters Estimates had on average expected $1.97 billion. In October, the company had anticipated revenues of $2.03 billion to $2.15 billion.

The company said in a statement that industry pricing is significantly more competitive than previously forecast, contributing to the declines.

"In the current macro economic climate, we expect demand weakness to last well into the middle of the 2009 calendar year," said president and chief executive officer John Coyne. "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."The Lake Forest, Calif.-based company also said it will close one of its three hard drive manufacturing facilities in Thailand and close or sell off one of its two media substrate manufacturing facilities in Malaysia. It also announced plans to cut 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," Coyne said.

Much of the decline is attributed to the slowdown in sales of personal computers. Market researcher IDC this month cut its forecast for PC shipment growth next year to 3.8 percent. Just a few months ago, IDC had forecast a gain of 13.9 percent.

Western Digital said it should complete the cost-cutting moves by March and will take charges of $150 million over the next several quarters. It estimated savings of $150 million annually.

Last week, another storage vendor NetApp Inc. (Nasdaq: NTAP) also announced it would close a product line that experienced unexpectedly low demand, and will close a facility in Haifa, Israel, which employs 51 people, Reuters reported.0

SUBSCRIBE TO OUR NEWSLETTER
Stay informed! Sign up to get expert advice and insight delivered direct to your inbox

You May Also Like


More Insights