Western Digital Corp. (NYSE: WDC) recently reported revenue of US$1.1 billion on shipments of approximately 19.2 million hard drives, and net income of US$ 119.9 million, or US$ .53 per share for its fourth fiscal quarter ended June 30, 2006. Net income included approximately US$ 35 million in favorable adjustments. Revenue increased 15 per cent over the fourth quarter of the prior year, and net income, including the favorable adjustments, increased 191 per cent, versus revenue of US$ 940 million and net income of US$ 41.2 million, respectively. Net income in the prior year fourth quarter was negatively affected by a US$ 19 million expense for settlement of a lawsuit.
The favorable adjustments in net income in the fourth quarter included a US$ 13 million benefit to gross margin related to the resolution of certain items that impacted amounts previously recorded as costs, and a US$ 22 million benefit to income taxes related to an adjustment to the value of the company’s deferred tax assets.
Western Digital also announced that it has appointed a Special Committee of its Board of Directors that is conducting a company-initiated, voluntary review of its historical stock option grants. The Special Committee has hired independent counsel and is reviewing option grants from fiscal year 1998 to the present. While the Special Committee has not completed its review, a preliminary determination has been made that measurement dates for accounting purposes may differ from recorded dates used for certain grants made from fiscal year 1999 through fiscal year 2003. The company does not at present anticipate a material adjustment to the operating results included in this release. However, depending on the results of the Special Committee’s review, a material adjustment to the company’s financial statements could be required. The company has informed the Securities and Exchange Commission that its historical stock option grants are being reviewed. The company will provide a public statement once its review is complete.
WD also separately announced that it is in volume production of 2.5-inch mobile hard drives with 80 gigabyte-per-platter perpendicular magnetic recording (PMR) technology and of 3.5-inch desktop hard drives utilizing 160 gigabyte-per-platter technology. Both product families utilize heads designed and manufactured by WD.
“Our results in the June quarter demonstrate WD’s ability to post consistently strong financial performance and they represent a noteworthy achievement during the industry’s slower season,” said Arif Shakeel, chief executive officer of Western Digital. “We performed well in the high volume desktop market and showed significant progress in our two major growth markets—3.5-inch drives for consumer electronics (CE) and 2.5-inch drives for notebook PCs”.
“Several years ago, we established revenue diversification as a key strategic objective in order to leverage our resources into an expanding array of hard drive applications and fast-growing markets,” Shakeel said. “We continued to make excellent progress in addressing these opportunities in the fourth quarter: 34 per cent of revenue came from new markets for WD such as CE and mobile drives, while 66 per cent came from the desktop PC market. This compares with a mix in the year-ago quarter of 23 per cent new market revenue and 77 per cent desktop PC revenue.”
Demonstrating this trend, shipments of 3.5-inch hard drives for CE devices such as digital and personal video recorders expanded to 2.2 million units in the June quarter while 2.5-inch mobile hard drive shipments grew to 1.6 million, with both categories showing strong year-over-year and sequential growth.
Commenting on the company’s volume production of 2.5-inch mobile hard drives with 80 gigabyte-per-platter PMR technology and of 3.5-inch desktop hard drives utilizing 160 gigabyte per-platter technology, Shakeel said: “These technology achievements represent a continued return on investment from our substantial technology spending over the last four years. We are deploying both technologies at a time when we can maximize the critical balance of cost, reliability, quality, availability, and our customers’ needs.”
The company’s results for its full year ended June 30, 2006, reflected strong year-over-year performance, with revenue of US$ 4.3 billion, net income of US$ 396 million, and earnings per share of US$ 1.77. Net income for the full year included the US$ 22 million adjustment related to deferred income taxes. These results represent increases in revenue of 19 per cent and in net income of 100 per cent, including the favorable adjustment, compared with fiscal 2005. For the prior year, net income was US$ 198 million, or US$ .91 per share.
From a balance sheet perspective, WD generated over US$ 400 million in cash flow from operations during fiscal 2006, and ended the year with US$ 699 million of cash and short-term investments, an increase of 17 per cent from the prior fiscal year.
“Our fiscal-year performance reflects a sustained track record by WD of executing in all aspects of our operations and of delivering outstanding financial results throughout all seasons in the dynamic hard drive industry,” said Shakeel. “We remain focused on executing to our business model as we address the multiple growth market opportunities for high-volume suppliers in our industry.”
About Western Digital (WD):
WD, one of the storage industry’s pioneers and long-time leaders, provides products and services for people and organizations that collect, manage and use digital information. The company produces reliable, high-performance hard drives that keep users’ data close-at-hand and secure from loss.
WD was founded in 1970. The company’s storage products are marketed to leading systems manufacturers and selected resellers under the Western Digital and WD brand names. Visit the Investor section of the company’s website (www.westerndigital.com) to access a variety of financial and investor information.
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