Incorporated: 1971
NAIC: 334290 Other Communication Equipment Manufacturing
SIC: 3669 Communications Equipment Nec
Western Digital Corporation is one of the world's leading developers and manufacturers of data storage solutions for the computer and other industries. The company has been a pioneering force in the development of internal and external hard drives for desktops, laptops, and other computer applications, in both the original equipment manufacturers (OEM) and retail sectors. While the desktop hard-drive market remains the company's largest source of revenues, accounting for more than 55 percent of its 2007 revenues of $5.47 billion, the company has successfully expanded its data storage technologies to a number of nontraditional markets, such as the launch of a range of branded products, including the My Book line of external data storage appliances, hard drives for the Xbox game consoles, and digital video storage drives.
The company's branded sales have grown strongly, accounting for more than 16 percent of its sales in 2007. Western Digital remains at the forefront of hard-drive technologies--in 2007, the company debuted a line of GreenPower low-energy consuming hard drives, as well as a hard-drive system capable of storing up to two terabytes of data. Western Digital operates manufacturing facilities in California, Malaysia, and Thailand, and sales and distribution subsidiaries throughout much of the world. The company is listed on the New York Stock Exchange, and is led by President and CEO John F. Coyne.
The Early Years
The invention of the computer microprocessor and all that followed is surely matchless in the history of U.S. manufacturing. The computer industry is loaded with sweeping epics like that of the rise and tumble of Steven Jobs and Apple Computer, but the Western Digital saga is reasonably serene. While Western Digital miscalculated the evolutionary direction of the computer industry on several occasions, it has always managed to recover and to maintain a significant presence.
In 1970, Western Digital began producing special semiconductors in its incarnation as Emerson Electric Company of St. Louis. Based in Santa Ana, California, the company was financially backed by the Emerson Electric Company of St. Louis and various other independent investors. A year later, the Western Digital appellation was born and headquarters were shifted to Newport Beach, California. Alvin B. Phillips was the founder and president of Western Digital from its inception until 1976. His technical experience in semiconductors was a critical element of the early formation of the company. The most important company event of the 1970s was the manufacture of a 4K RAM chip. Technological breakthroughs multiplied exponentially in this period.
The 1980s proved to be the least predictable period of growth in the electronics/computer industry. The company underestimated the importance of IBM's PC/XT and its related floppy drives and interfaces. However, in 1983, Western Digital engineers produced a wire-wrapped prototype of a hard-drive controller for IBM's PC/AT in only 14 days. Western Digital then elected to concentrate its attention on supplying components for the newly developed personal computer (PC) market.
Of the innovations that President and Chief of Operations Roger W. Johnson brought to Western Digital in the early 1980s, nurturing a stable of engineering innovators was one of the most important. Within four years of Johnson's start, sales doubled and earnings grew to $21 million. Among the achievements at Western Digital in the early 1980s was the first Winchester disk drive controller in 1982. Almost 90 percent of Western Digital's income was coming from storage controller products by 1985. The company was one of the first to choose to provide controllers to the preeminent PC manufacturers, such as IBM, Compaq, Hewlett-Packard, and Tandy, thus positioning it for later successes and perhaps foreshadowing Western Digital's later partnership with IBM.
Expansion and New Directions
By the mid-1980s, Western Digital was in the position to acquire new business and start off in new directions. The Massachusetts Institute of Technology worked in concert with Western Digital to develop the "Nu machine," an artificial intelligence computer later sold to Texas Instruments. Another result of this hybrid team was the "Nu bus," designed to open Macintosh buses to peripherals. Macintosh had developed several of their own versions of this product, but the "Nu bus" was chosen over all of them.
The late 1980s brought Kathryn Braun into the administrative spotlight in the Personal Storage Division, and the decisions she made would affect the future success of the company profoundly. In a time of fiscal strength for Western Digital, Braun recommended that the company focus on supplying hard disk storage to OEMs--such as IBM and its compatibles. By acquiring Tandon drive manufacturers at this time, Western Digital gained a foothold in this growing sector. In Singapore, the Western Digital team labored to convert Tandon's production line into a smoother and more profitably run facility. Braun succeeded in increasing her division's annual income from $15 million to more than $2 billion.
Western Digital went on to buy several other smaller peripheral manufacturers, such as Adaptive Data Systems, Paradise, and Verticom. These companies provided Western Digital with key components to diversify and expand. In 1988, Western Digital became a Fortune 500 company. Two years later, the silicon wafer fabrication facility was opened in Irvine, California, and corporate headquarters, Irvine Spectrum, also transferred to Irvine.
Challenges in the Next Decade
The early 1990s saw many changes for the worse at Western Digital, reflecting the woes of the computer industry at large. The company reported that large-scale layoffs, financial write-offs, and debt restructure were necessary to keep Western Digital afloat. A recession similarly affected many other U.S. markets. Charles A. Haggarty was hired at Western Digital in 1992, having come from IBM. At Western Digital, he filled a variety of executive management needs. In 1993, he was first elected director, then chairman, and then chief executive officer of the company. At IBM, his Rochester, Minnesota, storage products team had won the Malcolm Baldrige National Quality Award in 1990. His years of OEM storage expertise were put to good use at Western Digital.
Under Haggarty's leadership, Western Digital was weaned from stand-alone memory storage to integrated disk drive storage. Western Digital fabricated the first two-platter, 3.5-inch, 340-megabyte drive in 1993. A year later, the first 3.5-inch, 1-gigabyte, 3-platter Enhanced Integrated Drive Electronic (IDE) drive was produced, otherwise known as a hard-drive interface. An Enhanced IDE drive was faster, had more expansion options, and handled more material. By 1995, Western Digital's IDE storage capacity was increased by another half gigabyte. These products were members of the well-received Caviar family of hard drives, which were found in Apples, Bull-Zeniths, Compaqs, Gateway 2000s, NECs, IBMs, and many other PCs.
In 1994, Western Digital was proud to announce that it had become the first U.S.-headquartered, multinational company to be awarded ISO 9001 status by the International Standards Organization. The ISO 9001 status linked all of Western Digital's operations with a global standard for high-quality processes.
While Western Digital's revenues increased steadily in the late 1990s, it was still experiencing an industry-wide slump based on increased competition, overproduction of drives that moldered in warehouses while inventory values declined, and a struggle to keep up with rapidly advancing technology.
One of Western Digital's sources of technological weakness was the lack of giant magnetoresistive (GMR) research advancement. The GMR technology was based on the property of certain magnetic materials that increase electrical resistance when exposed to a magnetic field. The resulting sensors are extraordinarily sensitive, making it possible to store enormous amounts of data in the disk. It was speculated that this technology could eventually make chip memory storage obsolete. IBM's research scientists announced that they had fit "more than 11.6 billion bits of data in one square inch on the surface of a rotating magnetic disk," according to a February 1998 issue of the New York Times.
The disastrous declines in Asian markets near the end of the 1990s hurt U.S. technology revenues in general, and compounded Western Digital's woes. Not only did Western Digital manufacture drives in the East, but it also sold 10 to 15 percent of those drives there, before selling the remainder in the United States. The declining values of Asian currency had at least one benefit--however temporary--for Western Digital: "Sales in Asia have fallen, but profits are rising," the New York Times reported in late 1997. "The disk drives are sold in dollars, while the manufacturing costs are incurred in the weakening Asian currencies." It was predicted that inflation would eventually correct this phenomenon, but Western Digital enjoyed it while it lasted.
Western Digital's struggle to keep up, technology-wise, led industry experts to speculate that the company was perfect for purchase in 1998. The Orange County Business Journal quoted David Takata, an analyst with Gruntal & Co., in February 1998: "One of the reasons people are speculating about IBM buying a desktop drive company like Western Digital [is that] IBM would gain manufacturing expertise and Western Digital would gain R&D talent." Takata speculated that Haggarty's previous relationship with IBM might smooth the way for a takeover. As the situation developed, however, market researcher Jim Porter of Disk/Trend, Inc., had a different outlook: "My take on the management out there is they would rather do it themselves. I can't imagine Chuck [Haggarty] going back to work for IBM."
Instead of a takeover, IBM and Western Digital entered into an agreement to work together for the very reasons Porter cited. Haggarty told his board of directors that the move was a "major step in changing the game," according to a Western Digital press release. "Last fall we rolled up our sleeves, did a lot of soul searching and seriously examined our business model. We concluded that pursuing a significantly expanded relationship with IBM ... was in the best interests of our company, our employees and shareholders." Haggarty went on to detail the advantages of the agreement, and to emphasize the enthusiasm of company officers in both companies.
Concern had been raised in late 1997 among Western Digital shareholders that the company had misrepresented its assets, and that losses were not taken in a timely fashion. A class-action suit was announced against Western Digital on February 2, 1998, alleging that some key insiders had manipulated financial numbers to their benefit, while the average stockholder took a loss. The New York law firm of Stull, Stull & Brody represented what one source called a "handful" of plaintiffs, while Western Digital denied all charges against it.
Western Digital had indeed sustained hard financial blows late in 1997; the company went from debt-free to $513.1 million in debt between December 27, 1997, and March 28, 1998. While Western Digital stock went as high as 54.75 and split at 44 in 1997, it had yet to regain its original value a year later, going as low as 14.5. Funding was tight, and Western Digital raised money the old-fashioned way: they sold $400 million of zero coupon convertible subordinated debentures. The Dow Jones Newswires reported on February 12, 1998, that Western Digital "intends to use the net proceeds of the offering for general corporate purposes." A month before, the company had broken ground on a new manufacturing facility in San Jose, California. Meanwhile in Rochester, Minnesota, the new Enterprise Storage Group's headquarters were in the process of being built. The new research and development facility was planned to include a clean room, administrative and engineering offices, and design laboratories.
Western Digital took special measures to recover its financial equilibrium. In mid-1998, the company entered into a special partnership agreement whereby IBM would share its areal-density GMR heads with Western Digital, and IBM in turn would have a foothold in the PC peripherals market.
Survivor in the New Century
Western Digital continued to suffer from the massive oversupply of the hard-drive market into the end of the decade. Worse for the company, the oversupply of the market was forcing prices down. The company attempted to offset its reliance in that sector with a thrust into new product areas, including software development, launching a high-end drive unit, and developing video image storage systems, investing over $100 million in order to diversify its operations. In the meantime, the company continued to suffer from major revenue losses, as hard-drive prices dropped by some 45 percent by the end of the decade.
In 1999, the already fragile Western Digital faced a new problem after it discovered that it had shipped out more than 400,000 hard drives--to Dell and other major computer makers--with defective chips. The company was forced to recall and replace the drives. The losses involved in the recall were exacerbated by the damage done to the company's reputation. Over the next two years, the company's sales continued to fall, dropping by more than $1.2 billion.
In response, Western Digital named Matt Massengill, then serving as co-COO, to take up the chief executive officer's job. Massengill launched the company on a restructuring, selling its diversified operations, and shutting down two factories in Singapore to refocus its manufacturing base on its Malaysian factory.
Refocused on its core hard-drive operations, Western Digital recognized the potential of adapting its existing technology and formats for a newly emerging market of hard disk-based home entertainment products. This effort paid off when the company was picked to supply the new Xbox game console system developed by Microsoft as a rival to the Sony PlayStation. From this success, the company also emerged as a major supplier of hard drives for the new generation of digital video recording systems, such as TIVO. At the same time, the company, which had remained focused on the larger desktop sector, also developed the technology to enter the fast-growing laptop market. Western Digital also made strives in its core hard-drive technology, launching a 10,000 rpm drive in 2003.
By then, while the rest of the high technology industry continued to struggle through the effects of a collapse in the global market, Western Digital had shed its years of losses. The company acquired one of its primary parts suppliers in 2003, buying bankrupt Read-Rite Corp. for $95.4 million. The purchase gave the company production facilities in Thailand. The acquisition of Read-Rite also gave the company control over the production of the read-write heads needed for its hard drives.
Western Digital profited from the surge in the sales in laptops at mid-decade, selling more than one million of its 2.5 mobile drives in the first quarter of 2005 alone. The company's early positioning in the non-PC hard-drive market also enabled it to become a major supplier to this market, selling more than 2.5 million hard drives for the personal and digital video recorder segment. At the same time, the company prepared to expand its range of products, developing drives for such uses as cell phones, portable music devices, digital cameras, and the like. By 2007, the company had also debuted its innovative line of My Book data storage appliances.
Western Digital had not only survived the high-technology shakeup of the early years of the new century, it had successfully reduced its reliance on its core computer hard disk operations by repositioning itself as a diversified manufacturer of data storage solutions for a variety of applications. With revenues of nearly $5.5 billion in its 2007 fiscal year, Western Digital claimed a market share of more than 16 percent.
Principal Subsidiaries
Read-Rite (Malaysia) Sdn. Bhd; Read-Rite International (Cayman Islands); Read-Rite Philippines, Inc.; Western Digital (Deutschland) GmbH; Western Digital (France) SARL; Western Digital (Fremont) LLC; Western Digital (Malaysia) Sdn. Bhd.; Western Digital (S.E. Asia) Pte Ltd.; Western Digital (Thailand) Company Ltd.; Western Digital (U.K.) Ltd.; Western Digital Canada Corporation; Western Digital Hong Kong Ltd.; Western Digital Ireland, Ltd.; Western Digital Japan Ltd.; Western Digital Korea, Ltd.; Western Digital Latin America, Inc.; Western Digital Netherlands B.V.; Western Digital Taiwan Co., Ltd.; Western Digital Technologies, Inc.; Western Digital Ventures, Inc.
Principal Competitors
Seagate Technology, Inc.; Fujitsu Corporation; Samsung Corporation.
Further Reading
"Applied Magnetics Down; IBM-Western Dig Deal Hurts Outlook," Dow Jones Newswires, May 5, 1998.
Grimes, Christopher, "Disk Drives' Woes Continues in 1Q; Slow Recovery Seen," Dow Jones Newswires, April 13, 1998.
Markoff, John, "Crowding Even More Data into Even Smaller Spaces," New York Times, February 23, 1998.
"Rumors Rife of Western Digital Takeover by IBM," Orange County Business Journal, February 23-March 1, 1998, p. 1.
"Technology Brief--Western Digital Corp.: Quarterly Loss Is Posted as Charges Are Recorded," Wall Street Journal, January 30, 1998.
Twenty-Five Years of Innovation: The History of Western Digital, Irvine, Calif.: Western Digital Corp., 1995, 10 p.
Uchitelle, Louis, "Dimming Economies of Asia Cast Shadows on U.S. Firms," New York Times, December 14, 1997.
"Western Digital Begins Construction on R&D Center," Dow Jones Newswires, May 22, 1998.
"Western Digital Boosts Conv Sub Deb Offering to $400M," Dow Jones Newswires, February 12, 1998.
"Western Digital Breaks New Ground," Business Journal Serving San Jose & Silicon Valley, January 26, 1998, p. 58.
— Christine L. Ferran; Updated by M. L. Cohen
