Western Digital 2004 Annual Report Download - page 3

Western Digital performed well in fiscal year 2004 as we produced
revenue growth, continued solid profitability, served our customers with high
quality products, generated cash, and maintained our strong financial
condition. With vigorous discipline and focus on our low-cost business model,
we were able to produce operating income of $155 million.
A 22 percent increase in unit shipments produced 12 percent higher
revenues that reached $3 billion in fiscal 2004. WD continued to be a good
cash-flow producer, generating $190 million in cash from operations and
ending the year with cash totaling $378 million, even after the acquisition of
the Read-Rite Corp. assets and the related expansion of head production.
We completed the Read-Rite acquisition very early in the fiscal year and
set to work immediately to grow head production and conform operations to
WD’s processes and systems. Thanks to the smooth, rapid start-up of those
operations in California and Thailand, WD began to realize an earnings
benefit from the operation during the second quarter that continued through-
out the fiscal year.
Conditions were challenging in the hard drive industry for much of the
fiscal year, related primarily to an industry oversupply of product that resulted
in very aggressive pricing and reduced the industry’s profitability.
Although far from satisfactory in absolute terms, WD’s fiscal year
performance in this environment demonstrated the underlying strength of our
business model, one that we have spent the last four years developing and
fine-tuning. Our approach is to provide highly reliable and high quality
products at price points that enable mass-market adoption while generating
cash and profits. All of our addressable markets are either at mass-market level
or are heading there rapidly. This represents a significant change in the
industry, as in years past the end markets for drives such as notebook personal
computers, handheld consumer products, and enterprise storage were
characterized by relatively low volumes and high prices. We believe these
markets soon will resemble the high-volume desktop segment as consumers
and business buyers demand lower cost points for the products that utilize all
these drives.
These fundamental changes in our markets imply that only those
suppliers with the highest quality and reliability and the absolute lowest total
costs can effectively compete. WD has demonstrated over several years that
our model delivers compelling products with the best quality and reliability
and with low cost. The result is that today WD is ideally positioned in the
hard drive industry with an excellent reputation and favorable cost structure.
At the top end of our served markets, we remain a leading producer of
the highest-performing EIDE and Serial ATA (SATA) hard drives for desktop
personal computers. We are the only manufacturer of a 10,000 RPM SATA
drive, one of the SATA series used increasingly in place of the more costly
SCSI drives in many demanding enterprise and gaming computing
Fellow
Shareholders
Matt Massengill
Chairman and Chief Executive Officer
Dollars in millions
FY2002 FY2003 FY2004
$0
$1,000
$2,000
$3,000
$4,000
REVENUE
$3,047
$2,151
$2,719
Strong execution in a challenging market
environment resulted in a 42% improvement
in revenue over the past two years.
$0
$50
$100
$150
$200
FY2002
$51
OPERATING INCOME
$155
FY2003 FY2004
Dollars in millions
$187
Western Digital’s ability to provide highly
reliable and high quality products while
maintaining a favorable cost structure
enabled the company to achieve operating
income of $155 million in 2004.