Western Digital 2002 Annual Report Download - page 3

Fellow Shareholders
Western Digital Corporation performed well in fiscal 2002, producing
excellent gains in volume and profitability despite difficult conditions in the personal
computer market, our company’s largest. Our results were the best in four years.
Revenues grew 10 percent, to $2.15 billion, fueled by WD’s continued leadership in
desktop drives in the highest capacity and performance classes, our new line of value
drives for mainstream PCs, and our participation in new, non-PC applications of
hard drives. Our unit volume rose 31 percent to a total of 29.1 million hard drives.
Our hard drive business was profitable in every quarter, continuing a profit
performance begun in early fiscal 2001. Company-wide, Western Digital has
been profitable since the second fiscal quarter of 2002, thanks to tremendous
company-wide efforts in the improvement of efficiencies and cost controls, as well as
to the completion of our involvement with start-up ventures.
There were significant changes in the hard drive industry in fiscal 2002.
One major competitor worked through its acquisition of another; two producers
announced a joint venture; and a fifth competitor left the desktop hard drive
business. Meanwhile, the personal computer business suffered its worst results in a
decade. The hard drive industry nevertheless operated at a stronger pace, with
shipments nearly 12 percent greater in the first half of calendar 2002 – the final half
of our fiscal year – than in the corresponding period of 2001, which illustrates that
the need for data storage continues to be a priority, even in difficult economic times.
Western Digital continued its leadership in the 7200 RPM segment of the
hard drive business – addressing high-performance storage applications such as
music, video, Internet downloads and other demanding applications. Just after year’s
end we introduced a 200 gigabyte offering, our fourth successive generation of
7200 RPM product leadership. Based on the industry’s consolidation and on our
ability to execute well and efficiently in the high-end of the desktop business,
customers asked us to participate more actively in the entry-level market. We
responded quickly with a 5400 RPM value line that has enabled us to serve the
broad mix of the overall market more fully, including the fast-growing Asia Pacific
region.
The tremendous potential offered by non-PC applications of rotating
magnetic storage materialized early last year when WD began shipments of drives to
Microsoft for its new Xbox™game consoles. The inclusion of a hard drive in the
Xbox is one of the most important developments in the history of our industry.
Although it is our newest customer, Microsoft quickly became one of our largest.
Combining our Xbox shipments with our hard drive deliveries to other new
customers such as TiVo for its personal video recorders and Scientific-Atlanta for its
home entertainment servers, more than 10 percent of our unit shipments in fiscal
2002 went to business segments that barely existed just a year earlier. Western
Digital’s marketing and engineering staffs are working aggressively to expand our
reach further into such non-PC related markets.
>
>Matt Massengill
Chairman and
Chief Executive Officer
GROSS MARGIN
0.0%
FY2000
4.2%
10.6%
13.1%
FY2001 FY2002
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Results exclude non-recurring items.
Continuous improvements in product
designs and factory execution enabled
Western Digital to improve its gross margin
despite one of the toughest IT spending
environments ever.