Firm Profits From Both Sides of PC Fence : Western Digital Booming With Sales to Both IBM and Its Clones
While many in the computer industry debate, and even worry, whether IBM or the clone makers will dominate the personal computer market, Western Digital can afford to ignore the issue entirely.
Largely due to its strategy of supplying electronic circuitry to both International Business Machines and the manufacturers of PC clones, the Irvine electronics maker is expected today to announce record earnings of $21.5 million for the 1986 fiscal year, a dramatic reversal of its $4.6-million loss last year.
“If the clones get more business, so do I,” Western Digital Chairman and Chief Executive Roger Johnson says gleefully. “And if IBM stomps all over them, then I get more IBM business. . . . All I care about is that more computers are sold.”
This “eat your cake and have it too” approach has made Western Digital one of the fastest growing and most successful suppliers to the still-slumping personal computer industry.
Skyrocketing Sales
While sales of personal computers are running just 10% to 15% above last year, sales of Western Digital electronic circuits, most of which end up in PCs, have skyrocketed. Today the company is to announce sales of $279.4 million for the fiscal year ended June 30, 58% higher than the $177.3 million posted the year before.
The strategy also demonstrates what analysts say is Western Digital’s determined push to become a high-volume, industrywide supplier capable of withstanding the turbulence in the young PC industry.
“The PC ground shifts rapidly,” said David Townes, an analyst with Needham & Co. in New York. “With more diversity, Western Digital is less likely to have big swings in revenues and profits.”
Western Digital’s erratic performance in the past, including its loss last year, was blamed on insufficient internal controls and an unfocused business strategy. Johnson, however, has narrowed the company’s business niches to data storage and data communication chips and boards, and tightened spending and accounting systems. The company’s challenge now, analysts say, is to find as many applications, outlets and customers as possible for its products.
Johnson likes to compare Western Digital to an automobile spark-plug maker, a company that has an indispensable, if unheralded, product that can fit into almost any vehicle. “Basically, we sell customized high-tech spark plugs,” Johnson says. “We have a generic product that can meet many applications. We just have to develop the opportunities.”
To that end, Johnson has pushed the company into supplying the rapidly multiplying numbers of PC clone manufacturers. Clones are considered the fastest growing segment of the PC market.
According to the company, clone makers in Japan, Korea, Taiwan and Singapore bought about $25 million, or 9%, of the company’s products in the 1986 fiscal year. IBM, which once accounted for more than 40% of the company’s business, bought $81 million, or 29%, of Western Digital’s chips and boards for its personal computers last year. Analysts say that virtually every personal computer maker in the world uses Western Digital products.
Product Line Developed
Under Johnson, the company has developed a growing line of products for the retail after-market, still one of the stronger segments of the industry. Those products, which enhance the capabilities of the basic computers, began to roll out of the factory in early 1985. They accounted for 28% of the company’s revenue in the 1986 fiscal year.
In addition, Johnson has led the company into new international markets. Last year, foreign sales amounted to $93 million--one-third of total revenue.
By pushing volume, analysts say the company is able to keep its prices low. And by being the low-cost supplier, the company is positioned to capture even more sales. “It’s an aggressive company,” says Robert Sullivan, an analyst with Paine Webber in New York. “The strategy is intelligent.”
For the future, Western Digital plans to expand its offerings.
One new product that has excited some analysts is an electronic circuit and software that allows personal computers to work together and share the same information in what is called a “local area network.”
Although networks have long been an industry buzzword, no company has yet supplied widely accepted equipment that computer users need to establish them.
Computer Graphics
However, analysts say the product that Western Digital introduced earlier this month has the potential for becoming the circuitry that sets the standard in the local area network market.
Johnson also wants to expand Western Digital into the computer graphics market with circuitry that allows computer users to draw graphs, charts and pictures on their machines. Although no plans are currently in the works, Johnson said Western Digital would not be adverse to using some of its $44-million cash reserve to buy a computer graphics company.
WESTERN DIGITAL REVENUE AND EARNINGS
(in millions of dollars)
Earnings Revenue (Loss) 1986 $279.4 $21.5 1985 177.3 (4.6) 1984 113.5 7.8 1983 50.5 1.5 1982 34.8 (7.1) 1981 26.7 (0.6) 1980 20.6 0.5
