Western Digital 2000 Annual Report Download - page 22

Overview
Western Digital is a longtime leader in the data storage industry and is leveraging its core strengths to
extend its data storage product oÅerings and expand beyond the traditional market for hard drives into new
markets which meet certain predeÑned criteria. The Company considers new or high growth markets for data
or content storage, management, and communication which have few entrenched competitors and oÅer the
prospect of a sustained competitive advantage through unique or proprietary technology.
The hard drive industry, the Company's primary business, is intensely competitive and has experienced a
great deal of growth, entry and exit of Ñrms, and technological change over the past several years. This
industry is characterized by short product life cycles, dependence upon highly skilled engineering and other
personnel, signiÑcant expenditures for product development and recurring periods of oversupply. As a result of
operating losses incurred in 1998, the Company initiated restructuring programs for its hard drive operations in
1999 and 2000 to reduce costs and improve operating eÇciency. During 1999, the Company combined its
Personal Storage Division and Enterprise Storage Group into a single hard drive operating unit, closed its
Tuas, Singapore facility and moved production of its enterprise drives 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 of 1999. Also during 1999, the Company sold its Santa Clara disk media operations to Komag,
recording a charge to operations of $20.0 million, in the fourth quarter of 1999.
During 2000, the Company reorganized its operational and management responsibilities, transferred its
hard drive production from Singapore to Malaysia and closed its Singapore operations. These actions resulted
in a net reduction of worldwide headcount of approximately 1,600 and net charges to operations of
$52.6 million. Also in 2000, the Company exited the enterprise hard drive market, shifting its strategic focus
and resources in the enterprise storage market to data content management systems and management software
for storage systems. In connection with this decision, the Company closed its Rochester, Minnesota enterprise
hard drive design center. Approximately 402 employees were terminated and restructuring and other charges
totaling $72.9 million were recorded.
During the Ñrst quarter of 2000, the Company announced a recall of its 6.8GB per platter series of WD
Caviar@ desktop hard drives because of a reliability problem resulting from a faulty power driver chip
manufactured by a third-party supplier. As a result, revenues of approximately $100 million were reversed and
the Caviar product line was shut down for approximately two weeks, eliminating approximately $70 million of
forecasted revenue. In addition, charges totaling $37.7 million for estimated costs to recall and repair the
aÅected drives were recorded to cost of revenues in 2000.
In February 1999, the Company acquired its Connex subsidiary for approximately $12.0 million. Connex
delivers enterprise-class storage functionality for the department and mid-sized business markets, including
storage management software, network attached storage and storage area networks. In 2000, the Company
formed Sagetree, Inc. (""Sagetree''), to design and market packaged analytical applications and related
services for supply chain and product lifecycle intelligence. In addition, the Company is developing products
for consumer audio and video applications. Total operating losses for Connex, Sagetree and other developing
new ventures amounted to $38.9 million in 2000.
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