1
EXHIBIT 99.2
PRESS RELEASE
WESTERN DIGITAL ANNOUNCES FIRST QUARTER RESULTS
IRVINE, CA--October 19, 1998--Western Digital Corporation (NYSE:WDC) today
reported revenue of $651 million for its first quarter ending September 26,
1998. The Company reported a net loss of $110.2 million or $1.24 per share,
excluding special charges of approximately $85 million. Including the special
charges, the Company had a net loss and net loss per share of $194.7 million and
$2.20, respectively. In the year ago period, Western Digital reported revenue of
$1.09 billion, net income of $62.7 million, and diluted earnings per share of
$.67.
Included in the first-quarter special charges was a $77 million increase in
warranty reserves associated with the Company's last generations of thin film
(TF) desktop products. Western Digital completed the transition in its desktop
business to the newer magneto resistive (MR) head technology in the June 1998
quarter. The increase in the warranty reserves is based on recent experience
with thin film returns which indicates a slightly higher total return rate,
higher cost of repair and a longer duration of returns within the warranty
period. The current charge represents the Company's best estimate of the
increase in the warranty obligation for these thin film products.
Western Digital is now sampling its fourth-generation MR product and has seen
the best factory yields with these drives in the history of the Company. MR
drives now comprise 100% of its desktop shipments.
The special charges also include a $7.5 million provision for losses on
terminated hedging contracts in the Malaysian ringgit currency due to the
Malaysian government's imposition of currency controls.
Addressing the first quarter's performance, Chuck Haggerty, chairman, president
and chief executive officer of Western Digital, stated: "The September quarter
operating performance reflects tough -- albeit improving -- conditions in the
desktop HDD industry, as well as some solid progress in the operations at
Western Digital. Pricing remains competitive in the desktop space as the
industry works off what is hopefully the last of its excess inventories. We
continue to see improving demand from the PC OEMs.
"The key to our return to profitability is restoring our desktop business to
market leadership," said Haggerty, citing several examples of progress on this
front:
* for the second consecutive quarter, desktop revenue from the world's
leading PC makers increased.
* for the second consecutive quarter, the percentage of overall revenue
from OEM customers increased, to 69% versus 65% in the June 1998
quarter.
* the WD Caviar 3.4GB/platter products reached volume production in the
quarter as planned, with six major OEM customers completing
qualification of the program.
2
* 11 major OEM customers worldwide have committed to qualify WD's
soon-to-be announced next generation MR desktop drive.
* factory yields and quality levels on the Company's MR products
continued to exceed Company historical highs.
* development of the first WD drive featuring IBM technology under the
new IBM agreement moved closer to ramp and qualification in the first
half of calendar 1999.
"We have also maintained an intense focus on asset management," said Haggerty.
"The cash balance at quarter's end was $404 million, reflecting improved working
capital management in a very challenging environment. Our total inventory turns
improved to 16. This included a reduction of in-house finished goods as well as
our inventory in the distribution channel.
"The focus in the quarters ahead will be on execution of new product programs in
both the desktop and enterprise segments of our business, converting
qualifications into primary supplier positions at top PC OEMs, and continued
focus on improved asset management."
Western Digital Corporation is a leader in information storage products and
services. The Company designs and manufactures hard drives for personal and
enterprise-wide computing, and markets them to leading systems manufacturers and
selected resellers under the Western Digital brand name. Western Digital is the
first Fortune 500, multinational company to have been awarded company-wide ISO
9001 registration, linking all WD organizations with a consistent global
standard for quality processes. The Company was founded in 1970 and has long
been noted for its storage and end-market systems-level design knowledge. The
Company's World Wide Web home page can be found at
http://www.westerndigital.com.
This release contains forward-looking statements, including statements relating
to the special charges, industry demand, the Company's return to market
leadership, development of new products, converting qualifications into primary
supplier positions, and improved asset management. The forward looking
statements are based on current management expectations, and actual results may
differ materially as a result of several factors, including: the extent to which
actual warranty expense may vary from the estimates included in the special
charges, overall supply and customer demand in the hard drive industry;
continued improvement in time to market and time to volume of the Company's new
hard drives; changes in customer order patterns; continued successful
qualification of the Company's drives with key OEM customers; business
conditions and growth in the personal and enterprise computing industry; and
other factors discussed in the Company's Form 10-K for the year ended June 27,
1998, and its other SEC filings. Western Digital undertakes no obligation to
update forward-looking statements to reflect events or circumstances occurring
after the date of such statements.
2
3
WESTERN DIGITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED
---------------------------------------
SEPT. 26, SEPT. 27, JUNE 27,
1998 1997 1998
---------- ---------- -----------
Revenues, net.............................. $ 650,858 $1,090,164 $ 650,503
Costs and expenses:
Cost of revenues ....................... 733,610 929,105 692,243
Research and development................ 51,921 42,302 70,010
Selling, general and administrative..... 57,332 46,694 50,719
---------- ---------- -----------
Total costs and expenses......... 842,863 1,018,101 812,972
---------- ---------- -----------
Operating income (loss) ................... (192,005) 72,063 (162,469)
Net interest income (expense).............. (2,653) 2,588 (250)
---------- ---------- ------------
Income (loss) before income taxes.......... (194,658) 74,651 (162,719)
Provision for income taxes................. -- 11,944 --
---------- ---------- -----------
Net income (loss).......................... $ (194,658) $ 62,707 $ (162,719)
========== ========== ===========
Earnings (loss) per common share:
Basic............................ $ (2.20) $ .72 $ (1.84)
========== ========== ===========
Diluted.......................... $ (2.20) $ .67 $ (1.84)
========== ========== ===========
Common shares used in computing per
share amounts:
Basic............................ 88,545 86,742 88,226
========== ========== ===========
Diluted.......................... 88,545 93,613 88,226
========== ========== ===========
4
WESTERN DIGITAL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SEPT. 26, JUNE 27,
1998 1998
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents..................... $ 404,153 $ 459,830
Accounts receivable, net...................... 378,295 369,013
Inventories................................... 167,503 186,516
Prepaid expenses.............................. 35,572 36,763
---------- ----------
Total current assets...................... 985,523 1,052,122
Property and equipment, net....................... 350,888 346,987
Intangible and other assets, net.................. 40,465 43,579
---------- ----------
Total assets.............................. $1,376,876 $1,442,688
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................. $ 403,336 $ 330,130
Accrued expenses.............................. 304,522 258,449
---------- ----------
Total current liabilities................. 707,858 588,579
Long-term debt.................................... 525,307 519,188
Deferred income taxes............................. 16,949 17,163
Shareholders' equity:
Common stock, $.01 par value.................. 887 883
Additional paid-in capital.................... 122,684 119,026
Retained earnings............................. 3,191 197,849
---------- ----------
Total shareholders' equity................ 126,762 317,758
---------- ----------
Total liabilities and shareholders' equity $1,376,876 $1,442,688
========== ==========