Western Digital 1999 Annual Report Download - page 23

Bowne Conversion 18
(in millions, except per share and employee data)
Revenues, net ........................................ $2,130.9 $2,865.2 $4,177.9 $3,541.5 $2,767.2
Gross profit (loss) .................................. 394.1 382.1 650.3 100.1 (2.8)
Operating income (loss)......................... 133.0 77.5 301.6 (295.8) (476.8)
Net income (loss) .................................. $123.3 $96.9 $267.6 $(290.2) $(492.7)
Earnings (loss) per share:
Basic.................................................... $1.34 $1.05 $3.07 $(3.32) $(5.51)
Diluted................................................. $1.23 $1.01 $2.86 $(3.32) $(5.51)
Working capital..................................... $360.5 $280.2 $364.2 $463.5 $61.7
Total assets........................................... $858.8 $984.1 $1,307.1 $1,442.7 $1,002.4
Total long-term debt ............................. $—$—$—$519.2 $534.1
Shareholders' equity (deficiency)............ $473.4 $453.9 $620.0 $317.8 $(153.8)
Number of employees............................ 7,647 9,628 13,384 13,286 10,503
No cash dividends were paid for the years presented.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Overview
Western Digital is a leading supplier of hard drives for desktop and enterprise computers. The hard drive industry is intensely
competitive and has experienced a great deal of growth, entry and exit of firms, and technological change over the past several years.
This industry is characterized as a high-tech commodity business with short product life cycles, dependence upon highly skilled
engineering and other personnel, significant expenditures for product development and recurring periods of oversupply.
The Company's operating results during 1999 deteriorated primarily as a result of increased pricing competition, particularly in the
desktop storage market. Although the business environment was challenging in 1999, the Company continued to make significant
investments in its existing desktop and enterprise product lines, and acquired a start-up company which will add new product lines to
the Company in 2000. During the year, the Company also restructured its operations and completed the sale of its media business to
Komag.
In December 1998, the Company formed a strategic partnership with Sony Corporation to co-develop a new hard disk drive ("HDD")
for consumer audio and video ("AV") applications. The collaborative agreement calls for Sony to develop the interface, architecture,
and protocol for AV applications, while the Company will be responsible for developing the mechanical and electronic components and
firmware of the HDD. Each company will contribute its respective expertise to the development effort. Sony will contribute in the areas
of digital video and audio processing and Western Digital in HDD design and manufacturing technology. Commercialization of the AV
HDD is being targeted for the first half of calendar 2000.
In February 1999, the Company acquired Connex for approximately $12.0 million. Connex had, at the time of the acquisition, several
in-process research and development projects. The Company is continuing development efforts and expects to ship the first new
products developed by Connex in January 2000.
Cost-saving and organizational restructuring measures were taken in 1999 to improve the Company's financial performance and
responsiveness to changing industry conditions. In January 1999, the Company initiated a restructuring program that resulted in the
combination of its Personal Storage Division and Enterprise Storage Group into a single hard drive operating unit, the Drive Products
Division ("DPD"), which combined design, manufacturing, materials, business and product marketing resources to address both the
desktop and enterprise markets. In connection with combining the divisions, the Company's Tuas, Singapore facility was closed and
production of its enterprise drives was moved to the Company's nearby manufacturing facility in Chai-Chee, Singapore. The
combination resulted in a $41.0 million charge to operations in the third quarter. The Company has realized and expects to further realize
operating efficiencies as a result of the combination.
In April 1999, the Company completed the sale of its Santa Clara disk media operations to Komag. Terms of the sale agreement
include a three-year volume purchase agreement under which the Company must purchase a significant percentage of its media
requirements from Komag. The agreement does not require the Company to purchase a fixed minimum amount of media from Komag. As
a result of the sale, the Company recorded a fourth-quarter charge to operations of $20.0 million. Prior to the sale, Komag was already a
long-time media supplier to the Company. The two companies plan to work closely on the design and development of media for future