Western Digital Corp. – SWOT Analysis | Live Business News http://www.livebiznews.com/fortune-global-companies/computer-periphe...

Home
About Us
Contact Us
Disclaimer
Fortune 1000 Companies
Industrial Reports

Live Business News

A leading Market Information Resource
Tue
17
Mar

Western Digital Corp. – SWOT Analysis

admin

Western Digital designs, develops, manufactures and markets hard disk drives.The company’s hard disk drives
are used in desktop personal computers (PCs), enterprise servers, network attached storage devices;
consumer electronics products such as video game consoles, personal/digital video recorders, and satellite and
cable set-top boxes; and as external storage devices. The company’s improving financial performance in the
last few years has enabled it to strengthen investor confidence. However, intense competition would lower
the prices and affects the profitability and market share of the company.

Strengths
Strong financial performance

Western digital has recorded strong financial performance over the past few years. The company’s total
revenue has grown at a compounded annual growth rate of 19% to reach $5,468 million in fiscal 2007 from
$2,719 million in fiscal 2003. Western Digital’s operating income increased from $187 million in fiscal 2003
to $415 million in fiscal 2007, representing a CAGR of 22%.The company’s net income increased from $182
million in fiscal 2003 to $564 million in fiscal 2007, growing at a CAGR of 33%.Western Digital recorded
better operating and net income margins over its competitors. In fiscal 2007, the company recorded operating
and net income margin of 7.6% and 10.3%. In the same fiscal year, Toshiba, a competitor of the company
recorded operating and net income margin of 3.6% and 2.2%. Similarly, Fujitsu, another competitor of the
company, recorded operating and net income margin of 3.6% and 2.3% in fiscal 2007.

The company’s cash from operating activities has increased from $101 million in fiscal 2003 to $402 million
in fiscal 2007, representing a CAGR of 41% for the five year period. Western Digital has also recorded
comparatively higher returns than its competitors. In fiscal 2007, the company recorded return on assets
(ROA), return on equity (ROE), and return on capital employed of 22.6%, 39.3%, and 23.4%, respectively.
For the same fiscal year, Toshiba and Fujitsu recorded ROA, ROE, ROC of 2.6%, 13%, and 8.3% and 2.6%,
10.9%, and 8.5%, respectively. Strong revenue growth and cash flows indicate better financial position, and
helps the company build investor confidence.

Broad product portfolio

1 of 6 4/30/2011 6:57 PM
Western Digital Corp. – SWOT Analysis | Live Business News http://www.livebiznews.com/fortune-global-companies/computer-periphe...

Western Digital is a provider of hard drives for various markets like desktop, mobile, enterprise, and
consumer electronics.The company’s offerings for the desktop users include popular drives like WD Caviar
7,200 RPM drives, available in both EIDE and Serial ATA (SATA) interfaces. 10,000 RPM WD Raptor X is
the only hard drive in the world that has a see-through window. WD Scorpio hard drives form the high
performance drives in the mobile line.

In the enterprise storage segment, Western Digital offers WD Raptor, the world’s only 10,000-RPM SATA
hard drives. The WD RE enterprise series and WD Raptor offer high performance, reliability and capacity for
network attached storage devices, storage area networks, workstations, medical imaging, gaming and
video/broadcast applications. In the consumer electronics devices, Western Digital products include video-
streaming drives catering to the users of digital video recorders requiring large capacity for video streaming of
TV shows and movies. Broad product portfolio provides cross selling opportunities and insulates the company
from decline in demand in any particular segment.

Weaknesses

Customer concentration

Western Digital generates significant amounts of revenues from a limited number of customers. In the fiscal
2007, the company generated more than 10% of its total revenues from Dell, its single largest customer.
During 2007, 2006 and 2005, Dell accounted for 10%, 12%, and 16%, respectively, of the company’s total
revenue. In fiscal 2007, Western Digital recorded 47% of its total revenues from top 10 customers.

Dependence on limited number of customers for large proportion of its revenues increases the business risk of
the company. Loss of significant customers would not only affect the company’s results of operation but also
its market share.

Declining research and development (R&D) investment

The R&D investments of Western Digital have been declining over the past few years. Though the company’s
investment in R&D in absolute terms has increased from $135 million in fiscal 2003 to $306 million in fiscal
2007, its R&D spend as a percentage of total revenues has declined from 6.6% in 2004 to 5.6% in fiscal 2007.
By contrast, Seagate, a competitor of the company spent 8.7% of the total revenue as R&D investment.
Toshiba, another competitor of the company has recorded slightly higher investments of around 6% of the
total revenues as R&D spend.

Declining investment in R&D indicates lower attention towards development of technology and new
products, which is likely to have an adverse impact on the future competitiveness of the company. Lack of
competitiveness would adversely affect the business operation and market share of Western Digital.

Weak internal controls

The company’s involvement in certain litigations indicates instances of weak internal controls. In fiscal 2006,
the company initiated a review of historical stock option grants, which brought out several derivative actions
file on behalf of the company. These actions were against certain current and former directors and executives
of the company with the company as a nominal defendant. These actions claim violation of certain sections
like 10(b), 14(a) and 20(a) of the Securities Exchange Act, accounting, breach of fiduciary duty and/or aiding
and abetting, constructive fraud, waste of corporate assets, unjust enrichment, rescission, breach of contract,
violation of the California Corporations Code, abuse of control, gross mismanagement, and constructive trust
in connection with the company’s option granting practices.These complaints seek monetary damages and
reforms to the company’s governance.Weak internal controls would affect the investor confidence on the

2 of 6 4/30/2011 6:57 PM
Western Digital Corp. – SWOT Analysis | Live Business News http://www.livebiznews.com/fortune-global-companies/computer-periphe...

company.

Opportunities

Strategic acquisition

Western Digital has made a significant acquisition in the recent period. The company acquired Komag, a
manufacturer of hard drives, in September 2007. The company has strategic intention of integrating its
research and development activities in the US and its manufacturing facilities in Malaysia and Thailand with
those of its new partner, creating an improved value chain and cost effective model.Through the acquisition
of Komag, the company is also planning to integrate media in the hard drives. Successful integration of the
acquisition would enable the company create effective supply chain and strengthen its revenue streams.

New facilities

Western Digital is planning to expand its facilities in the US. In October 2007, the company signed a
multi-year lease for its planned hard drive design center in Longmont, Colorado. The company is working
towards making the center operational. Through the new facility, the company is planning to ensure continued
growth in its engineering capabilities. Expanding design centers enables the company to focus more on the
new technologies and enhance its product offerings.

New products

Western Digital has launched several new products in the recent period. In November 2007, the company
announced its new environmentally friendly, GreenPower family of WD enterprise hard drive products. The
WD RE2 GreenPower (GP) hard drive is in capacities of 500 gigabytes (GB),

750 GB and one terabyte (TB), and provides cost savings to the organizations dealing with large data. This
new drive caters to the information technology challenges like total available drive slots, maximum capacity,
and available power and budget. These products have power saving as their primary focus and deliver 40%
savings in hard drive power consumption.

In September 2007, the company launched My Book, external storage solutions to suite specific users. These
solutions were made available in My Book Home, My Book Office, and My Book Essential Editions in
capacities ranging from 320 GB to 1 TB. Earlier the company has released MY Book storage appliances in
capacities of 2TB in view of increasing digital content. New products launches would provide the company
with opportunities to add new customers and enhance its market share.

Threats

Intense competition

Western Digital operates in intensely competitive technology equipment markets. In the hard drive industry,
suppliers compete for sale of HDDs to limited number of large customers. Most of the products in the industry
are highly substitutable as they are used in compliance with certain technical standards. High substitutability
poses difficulties in product differentiation.

Hard drive manufacturers compete on the basis of product quality, reliability, storage capacity, unit price,
product performance, production volume capabilities, delivery capability, leadership in time-to-market,
time-to-volume and time-to-quality, and service and support.The company’s products are differentiated based
on operational excellence, high product quality and reliability, and designing and incorporating into hard
drives desirable product performance attributes rather than on storage capacity, buffer size or time-to-market.

3 of 6 4/30/2011 6:57 PM
Western Digital Corp. – SWOT Analysis | Live Business News http://www.livebiznews.com/fortune-global-companies/computer-periphe...

Some of the hard drive manufacturers with whom the company competes include ExcelStor Technology,
Samsung Electronics Incorporated, Fujitsu Limited, Seagate Technology, Hitachi Global Storage
Technologies, and Toshiba Corporation. Increasing competition lowers the prices and affects the profitability
and market share of the company.

Declining average selling prices

The hard drive industry has been experiencing declining average selling prices over the past few years. Prices
of the hard drives are increasing owing to various factors like decreasing production costs,liquidation of
excess inventories and attempts to gain market share. Average selling prices (ASP) also decline when there is
a shift in the mix of product sales, and sales of lower priced products increase relative to those of higher
priced products. Continued decline in the industry ASPs would lead to the same in the company’s ASPs,
affecting its operating profits.

Patents

Western Digital is dependent on numerous copyrights, trademarks, patents and related commitments to
protect its intellectual property rights. In spite of the careful procedures and ownership of several US and
international patents, the company is involved in intellectual property related litigations. For instance in
January 2007, Texas based StorMedia filed a complaint against the company and several other drive
manufacturers alleging infringement of a patent (US Patent No. 6,805,891). Western Digital answered the
complaint denying allegations and asserting affirmative defenses, and has also filed counterclaims against
StorMedia. Such litigations would impose financial obligations on the company. Any unfavorable outcomes in
the patent related litigations claiming damages would adversely affect the reputation and financial position of
the company.

Tags: SWOT Analysis, Western Digital Corp.

Author:
admin
Time:
Tuesday, March 17th, 2009 at 4:02 pm
Category:
Western Digital Corp.
Comments:
You can leave a response, or trackback from your own site.
RSS:
You can follow any responses to this entry through the RSS 2.0 feed.
Navigation:
« Western Digital Corp. – Revenue Analysis
Western Digital Corp. – Top Competitors »

Leave a Reply
You must be logged in to post a comment.

Enter your email address:

4 of 6 4/30/2011 6:57 PM
Western Digital Corp. – SWOT Analysis | Live Business News http://www.livebiznews.com/fortune-global-companies/computer-periphe...

Categories
Chevron Corporation
Executives Biographies
Exxon Mobil Corporation
Miscellanoeous
News
The Western Union Company
Wal-Mart Stores, Inc.
Walt Disney Company
Watsco
Weis Markets
WellPoint
Wells Fargo
Werner Enterprises
WESCO International
Westar Energy Inc
Western & Southern Financial Group
Western Digital Corp.
Weyerhaeuser Company
WGL Holdings Inc
Whole Foods Market Inc
Williams-Sonoma Inc
Windstream Corporation
Wisconsin Energy
World Fuel Services
Worthington Industries
Wyeth
Wyndham Worldwide

Pages

About Us
Contact Us
Disclaimer
Fortune 1000 Companies
Industrial Reports

Recent Posts

Daimler doubled profit in first quarter

Friday, April 29th, 2011
Investors scrambling for Commerzbank papers
Thursday, April 14th, 2011
Gaddafi’s faithful rebel push into a corner
Saturday, March 12th, 2011

5 of 6 4/30/2011 6:57 PM
Western Digital Corp. – SWOT Analysis | Live Business News http://www.livebiznews.com/fortune-global-companies/computer-periphe...

Assange lawyer complains of procedural errors

Friday, March 11th, 2011
Police holds senior ETA members in France
Friday, March 11th, 2011

Archives

April 2011
March 2011
February 2011
January 2011
November 2010
October 2010
September 2010
August 2010
July 2010
June 2010
May 2010
April 2010
March 2010
February 2010
January 2010
December 2009
October 2009
September 2009
August 2009
June 2009
May 2009
April 2009
March 2009
February 2009
January 2009
December 2008
November 2008

6 of 6 4/30/2011 6:57 PM