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Western Digital hits the buffers

2,500 face the axe

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Western Digital has faced up to the deepening recession by announcing the loss of up to 2,500 jobs, executive pay cuts and the closure of manufacturing plants in Malaysia and Thailand.

These actions are the result of a sudden and dramatic fall in demand for hard drives, particularly OEM demand for desktop, notebook and enterprise-SATA drives, which started in October and significantly accelerated through November. It affects all geographies with Russia, Korea and Latin America most affected through restricted customer credit access and weakening of local currencies against the dollar.

Tight credit markets worldwide have led customers in all channels to reduce inventories. WD expects the reduced demand run-rates to last well into 2009.

It says that revenue guidance of $2.025bn - $2.150bn, issued on October 23, no longer applies. Industry pricing is significantly more competitive than it expected and WD now expects revenue for the quarter to be $1.7bn - $1.8bn.

In total the company is halting all manufacturing operations from December 20 until January 2 2009. Pay for all its executives, board-level directors and other senior management is being cut. One of the three hard drive manufacturing plants in Navanakorn, Thailand will close as will one of its two media substrate facilities in Sarawak, Malaysia.

There will be a reduction in the number of temporary workers and a reduction in shift overtime, and workers who leave will not be replaced. This is intended to reduce manufacturing work hours by up to 20 per cent. The capital spending budget for fiscal 2009 will be cut from $750m to approximately $500m.

These actions should be complete by the end of March, 2009 and will result in total charges of approximately $150m but will save $150m a year.

CEO John Coyne’s base salary is cut 33 per cent. Chief Financial Officer Tim Leyden receives a 25 per cent base salary cut; the general counsel and chief technology officer both get a 15 per cent cut, as do the board directors.

Coyne said: “We are taking these actions in order to strengthen our financial position and enhance the ability of our business to withstand an extended period of depressed demand while continuing to invest in the technologies, products and processes required to assure the continued success of our business.”

The intention is to reduce WD’s expenses and “break-even” point to a level that allows it to be profitable and cash positive at a $1.5bn revenue run-rate.

The immediate expectation is that Seagate will be similarly affected, and will follow suit with its own cost-reduction activities. ®

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