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Western Digital posts three-fold increase in profits despite floods

Shorter warranties and higher prices pay off
Thu Jul 26 2012, 12:39
Western Digital External Hard Disk

STORAGE VENDOR Western Digital has highlighted the effects of artificially high hard drive prices by posting a doubling in revenue and a 375 per cent jump in profits.

Western Digital was hit hard by the floods in Thailand last year but as the flood waters receded, both it and Seagate have been making hay while the sun is shining. The company reported that its revenue for its fiscal fourth quarter almost doubled to $4.75bn while profits grew almost four-fold to $745m from the same period last year.

Despite Western Digital's problems at the start of its financial year, there was even more evidence that in some perverse way the Thai floods were the best thing to happen for the hard drive industry in many years. Western Digital announced that full year revenues increased 30 per cent to $12.5bn with profits more than doubling to $1.6bn.

Even though Seagate and Western Digital have got their respective supply chains back in order, the firms decided to reduce warranties on the majority of their hard disk drives and have kept prices significantly higher ever since. The two firms might point to drive shortages, but given that Western Digital's gross margin - revenue minus the cost of generating that revenue - has increased by over $1bn there's no doubt that Western Digital is milking the market situation.

Of course Western Digital's CEO John Coyne didn't say anything about disgraceful product warranties or inflated prices when commenting on his firm's results. Instead he said, "Fiscal 2012 was one of the most challenging and exciting years in our 42 year history. While responding to two major natural disasters and completing the largest acquisition in the history of the industry, we achieved year-over-year revenue growth of 31 per cent and more than doubled earnings per share."

Being fair to Western Digital, some of its revenue growth has come from its recently acquired Hitachi Global Storage business, however the sharp increase in gross margins underscores that fundamentally the efficiency of the firm's money making operations has increased. Sadly that increase has come straight out of its customers' pockets. µ

 

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