Western Digital® 2011 Annual Report and Form 10-K
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Western Digital® 2011 Annual Report and Form 10-K Store Protect Access Stream Share The Company Founded in 1970, Western Digital is a data storage pioneer and longtime leader in the hard drive industry. WD® provides cost effective storage solutions for people and organizations that collect, manage and use digital information. WD hard drives and solid-state drives are found in desktop and notebook computers, corporate networks, and home entertainment systems, as well as sophisticated medical, military/aerospace and telecommunications systems. They are also used as personal storage for backup and portable applications. Customers rely on WD drives to keep data accessible and secure from loss. WD is responding to changing market needs by delivering an ever– broadening range of storage solutions, deploying technologies which reduce energy usage, increase performance and improve ease of use, with the same quality, reliability and on-time delivery that have made WD successful in the traditional computing markets. The company also is stepping outside those traditional markets with new products such as media players that enable consumers to manage and enjoy a wealth of digital content. Our products are marketed to leading OEMs, systems manufacturers, selected resellers and retailers under the Western Digital and WD brand names. Product, financial and investor information is available on the company’s website at www.westerndigital.com. John F. Coyne, President and Chief Executive Officer Fellow Shareholders: Fiscal 2011 was a tough year in the hard drive industry with the REVENUE Dollars in millions PC and HDD industries growth rates slowing off the unexpectedly $9,850 strong post recession year of 2010. The slowdown was driven by $10,000 $9,526 $8,074 a marked drop in consumer spending and increased competition $8,000 $7,453 for share of consumer spending from devices like smartphones $6,000 $5,468 and tablets. The result was a challenging pricing environment for hard drives. $4,000 The HDD industry grew fiscal 2011 volumes 4% to 657 million $2,000 units, while WD again grew faster than the industry at 6%, $0 shipping 207 million hard drives for the year — a 1% share gain. FY2007 FY2008 FY2009 FY2010 FY2011 Customer preference for WD products and This reaffirms customer preference for WD’s value proposition continued long-term demand for storage has resulted in compounded annual revenue growth of providing a reliable supply of high quality storage solutions of 15% since 2007. at a competitive price with superior customer service. Revenue declined year-over-year, reflecting the challenging pricing environment amid slower demand in both the consumer and commercial industry sectors. EARNINGS PER SHARE Our business continued to be a consistent generator of cash $6.00 $5.93 in fiscal 2011. We further strengthened our balance sheet and $5.00 $4.00 $3.84 continued to make critical investments in technologies and $3.09 $3.00 $2.50 $2.08 infrastructure to support our industry leadership position, to drive $2.00 market expansion in our existing businesses as well as in our $1.00 $0 newer market entries like traditional enterprise and the digital FY2007 FY2008 FY2009 FY2010 FY2011 connected home. We exited the fiscal year with cash and cash A highly efficient business model and experienced management team underpin WD’s ability to deliver equivalents of $3.5 billion. solid profitability in any economic environment. We believe there are a number of reasons why the next few NET CASH Dollars in millions years could be a stronger period for the industry and for WD $3,500 $3,196 because of: $3,000 $2,500 $2,334 • the potential for an acceleration of the commercial $2,000 $1,312 PC refresh as part of an overall macro $1,500 reinvestment cycle; $1,000 $678 $595 $500 $0 • the potential for better consumer confidence FY2007 FY2008 FY2009 FY2010 FY2011 translating into stronger discretionary spending; Net cash (cash and cash equivalents less debt) ended the year at $3.2 billion, up $862 million from • the planned launch of redesigned, feature-rich the end of fiscal 2010. PCs enabled by Windows® 8; and • our continued favorable standing with customers CAPITAL EXPENDITURES Dollars in millions as one of the preferred suppliers of the world’s $778 $737 most cost–effective storage solutions for the $800 $615 $600 $519 massive amounts of content being generated on $400 $324 the client and in the cloud. $200 $0 In this context, it’s important to consider some history. Through- FY2007 FY2008 FY2009 FY2010 FY2011 out fiscal 2011, we operated close to the bottom of our business Capital expenditures continue to increase as we invest in manufacturing and development model range. Others in the industry struggled even more, capabilities to support our future growth. reporting results below their published models. Historical cycles show that prolonged periods of below-model performance are RESEARCH and DEVELOPMENT SPENDING typically followed by a return to business model parameters as Dollars in millions suppliers and customers alike recognize the need for industry $800 $611 $703 profitability to drive needed investments in both technology and $600 $464 $509 capacity. WD has repeatedly outperformed as these cyclical $400 $306 $200 corrections occur. $0 FY2007 FY2008 FY2009 FY2010 FY2011 On the other hand, with the industry’s lowest cost structure and a Research and development continues to increase demonstrated ability to adjust our operations quickly and adroitly as we invest in new products and technology that will support the growing demand for electronic to changing market conditions, we are prepared to deal with a data storage management. slower growth environment if this comes to pass. Our focus on excellence in operations, flexibility and execution CASH FLOW FROM OPERATIONS has been key to our success. In fiscal 2011, the WD team and Dollars in millions $1,942 our suppliers performed well as we navigated through the supply $2,000 chain disruptions stemming from the unfortunate events in $1,800 $1,655 $1,600 $1,399 Japan and a shift in demand patterns due to changes in freight $1,400 $1,305 practices from air to sea by our customers. $1,200 $1,000 $800 For the longer term, we remain optimistic in the growth prospects $618 of our industry as the proliferation of digital content and data $600 $400 continues unabated, along with the need to store, protect $200 $0 and display it. In fiscal 2011, we took a major strategic step FY2007 FY2008 FY2009 FY2010 FY2011 to strengthen our position as a leading player in the industry Strong profitability and disciplined balance sheet with our announced plan to acquire Hitachi Global Storage management generated $1.7 billion in cash flow from operations during 2011. Technologies (HGST), the hard drive division of Hitachi, Ltd. We believe the HGST acquisition will be good for competition and accelerate innovation. Upon completion of the transaction, we BRANDED PRODUCTS REVENUE Dollars in millions will have a stronger position in the traditional enterprise market, $2,000 an improved solid-state drive lineup and further cost advantage. $1,818 $1,793 We are working closely with the regulatory agencies to obtain $1,600 $1,403 $1,445 approval of the acquisition and subject to those approvals, we $1,200 believe we will close the transaction by the end of calendar 2011. $871 $800 In closing, I want to thank our customers for their loyalty. We will continue to work diligently to earn their business on an ongoing $400 basis. I also want to thank our suppliers for their support and $0 our employees for their passion and unfailing commitment. I look FY2007 FY2008 FY2009 FY2010 FY2011 forward to keeping you informed of our progress in the months WD’s ability to expand the market with innovative products and outstanding customer support has ahead in fiscal 2012. led to Branded Products’ compounded annual revenue growth of 20% since 2007. John F. Coyne President and Chief Executive Officer September 27, 2011 SHAREHOLDERS’ EQUITY Dollars in millions $6,000 $5,488 $5,000 $4,709 $4,000 $3,192 $3,000 $2,696 $2,000 $1,716 $1,000 $0 FY2007 FY2008 FY2009 FY2010 FY2011 Our long-term, sustained profitability has resulted in $5.5 billion of shareholders’ equity. (This page intentionally left blank) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K (Mark One) ¥ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended July 1, 2011 or n TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-8703 WESTERN DIGITAL CORPORATION (Exact Name of Registrant as Specified in Its Charter) Delaware 33-0956711 State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization Identification No.) 3355 Michelson Drive, Suite 100 92612 Irvine, California (Zip Code) (Address of principal executive offices) Registrant’s telephone number, including area code: (949) 672-7000 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Stock, $.01 Par Value Per Share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¥ No n Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes n No ¥ Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.