As conditions worsen in the beleaguered disk drive industry, Western Digital Corp revealed on Monday that for the last three months, it couldn’t even sell its drives at cost, let alone cover the additional overheads of running its business. And chief executive Chuck Haggerty issued a stern wake up call to his fellow disk drive makers saying, This industry must get back to rational pricing and production levels in order in order to receive the value for technology being delivered. Fourth quarter net losses rose to $163m as revenues dropped by 40% to $650m, and more significantly, the quarter was the first to see the basic cost of parts and labor exceed total revenues. No amount of downsizing or cost cutting can help a company forced into selling its products for less than it costs to build them. And Haggerty has clearly had enough of this damaging price war, which has helped OEM PC manufacturers to supplement their own thin profit margins, but which has pushed companies like Western Digital, Quantum Corp and Seagate Technology Inc into painful losses. In a conference call with analysts, Western Digital said it had experienced cumulative price declines in the last four quarters of 50% for its desktop hard drive business. Problems were exacerbated by what Haggerty called, questionable PC growth rates and the on-going crusade by PC makers like Compaq Computer Corp to slash their own inventories. In attempts to alleviate the oversupply problems causing the price decline, Haggerty said that relative to budget, 10 million less units had been produced in the year, leading to company-wide job cuts of 20% and shorter working weeks. Capital expenditure for the coming year has now been pegged back by 30% and with the slowest quarter of the year just commencing, the outlook is bleak. The company is expecting no upturn in demand until December at the earliest. Inventories of desktop drives in the distribution channel remain too high, preventing a return to a more normal market for some time, said Haggerty. But he has no intention of letting conditions push his company aside. He said Western Digital principle goal was to increase its share of the desktop PC OEM market, ready for the long awaited upswing. And he pointed to Western Digital’s $460 in cash, which was enough to see the company through equally poor trading conditions over the the next few quarters, he said. But with similar noises being made by the other major players in this sector, as they too strive to maintain volume in anticipation of a recovery, its hard to see how things can change for the better.
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