Rapid Growth Cited as Factor : Western Digital Quarter Shows $13.4-Million Loss

September 24, 1985|HEIDI EVANS | Times Staff Writer

Citing high production costs, rapid growth and inventory revaluation, Western Digital Corp. on Monday announced an unexpectedly high fourth-quarter loss of $13.4 million.

The loss for the three-month period ended June 30 compares to a $3.3-million net income for the same period in 1984.

Officials for the Irvine-based manufacturer of semiconductors and computer boards said the fourth-quarter results were caused by a number of one-time, "non-recurring" events and that the company would return to profitability in the first quarter of fiscal 1986.

Roger W. Johnson, Western Digital's chairman, president and chief executive officer, said Monday that the company ran into excess costs when high-volume orders came in from key customers, requiring him to hire more than 300 temporary workers. "In addition, we had to make some changes in production of computer board products which cost us," he said.

As a result of what the company termed a higher-than-anticipated fourth-quarter loss, Western reported a loss for the fiscal year ended June 30 of $4.6 million, compared with net income of $7.8 million in fiscal year 1984.

Revenues for the fourth quarter were $59.9 million compared to $41.7 million a year earlier. Sales for the fiscal year, however, hit a record $177.4 million compared to $133.5 million in 1984.

Johnson said the company fell below the compliance threshold of certain financial covenants in its bank credit agreement as a result of the fourth-quarter loss. The banks, he said, have agreed to grant the company a temporary waiver and then negotiate appropriate amendments to the covenants involved.

"The company grew very rapidly over the past year," Johnson said, noting significant manufacturing start-up investments, among them a new facility in Puerto Rico.

"Additionally, we engaged in extensive product design efforts for certain customers from whom we continue to receive orders on a regular basis. Due to our increased size and maturity, the company's management and board of directors have decided to take a more conservative view of how we account for these investments."

One analyst who follows Western Digital predicted that the company would "move forward from here" and be profitable in the future.

"I think this is a one-quarter glitch largely exacerbated by the steep growth occurring in a single quarter," said Daniel Klesken, a semiconductor analyst with Montgomery Securities in San Francisco. "It was not only difficult to grow 50%, but also to overcome the added inconvenience of having to rework a product when a major customer had an engineering change in April and a faulty chip came in from a major supplier," Klesken added.

"The steps we have taken to reduce costs, coupled with actions under way to improve cost accounting and manufacturing systems controls, will help to eliminate the problems that occurred during the fourth quarter," Johnson said.

"In addition, the more conservative stance we have adopted regarding the treatment of start-up and certain engineering costs are now more consistent with what is required to control a larger, more mature company."

Asked whether the company was considering any management changes, Johnson said, "We are reviewing our whole control structure at the moment. I don't know."

Western Digital currently employs about 1,600 people worldwide, including 1,000 in Orange County. Among its major customers are IBM and AT&T.

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