MEDIA RELEASE PR39318
Western Digital(R) to Acquire Hoya's Magnetic Media Operations
LAKE FOREST, Calif., Apr. 28 /PRNewswire-AsiaNet/ --
Acquisition Better Positions WD(R) to Meet Anticipated Future
Demand for Hard Drives
Western Digital Corporation (NYSE: WDC) announced today that it has
agreed to purchase the magnetic media sputtering operations of Hoya
Corporation and Hoya Magnetics Singapore Pte. Ltd. for 22 billion yen
(approximately US$235 million) in an all-cash transaction. The agreement
includes a multi-year commitment for glass substrate supply related to these
operations from Hoya, solidifying WD's access to a key component for its
2.5-inch hard drive business and further enhancing the ongoing partnership
between the companies. The acquisition will augment WD's existing magnetic
media operations, strengthening its ability to meet anticipated growth in
demand for hard drives in the years ahead.
WD(R) is acquiring the facilities, equipment, intellectual property and
working capital of Hoya's media sputtering operations, based in Tuas,
Singapore, where it expects to employ the entire current workforce. Certain
related equipment at Hoya's Nagasaka, Japan, research and development
facilities is included. The acquisition is expected to close in the current
calendar quarter.
John Coyne, president and chief executive officer of WD, stated, "This
investment will enhance WD's ability to support our customers' growth. In
addition to these assets, WD will also gain highly skilled and knowledgeable
employees, valuable intellectual property and access to Singapore's deep
academic and technology resources. We expect a seamless transition with the
integration of this well-run operation into WD, enabling immediate support of
anticipated hard drive demand growth in 2010 and beyond."
A set of questions and answers related to today's announcement follows.
About WD
WD, one of the storage industry's pioneers and long-time leaders,
provides products and services for people and organizations that collect,
manage and use digital information. The company produces reliable,
high-performance hard drives that keep users' data close-at-hand and secure
from loss. WD applies its storage expertise to consumer products for
external, portable and shared storage products.
WD was founded in 1970. The company's storage products are marketed to
leading systems manufacturers, selected resellers and retailers under the
Western Digital(R) and WD(R) brand names. Visit the Investor section of the
and investor information.
Questions and Answers
Strategic Questions
Q: Why is this acquisition important to Western Digital? What motivated
you to do this?
- We believe the acquisition will improve WD's ability to support our
customers' growth.
- Hoya's finished media business is a strong fit with WD from a
geographic supply chain perspective due to the location of the
manufacturing facilities in Singapore.
- This acquisition will enable us to meet our desired internal/external
finished media ratio faster.
- Other benefits include:
- provides a further cost advantage;
- mitigates the risk of geographic concentration of our facilities;
- provides an existing pool of talented employees;
- provides us with a more secure supply line of 2.5-inch glass
substrates; and
- intellectual property.
Q: What is your own assessment of Hoya's production capability? Can you
get further improved utilization out of the base assets?
- The Hoya media facility is productive and well run, however, we believe
that WD can bring additional synergies and improvements through scale
and the leverage of single-customer focus, as we have done with both
our head and prior media acquisitions.
Q: Will you use the facility for glass sputtering only?
- We intend to continue operating the facility as is, though the long-
term plan is to have the flexibility to respond to any media sputtering
demands.
Q: How does the product made here compare to what you are currently
making in other locations (relative to areal density, quality, etc.)?
- Hoya's products are comparable with the competitive set. Their products
are qualified at WD and other hard disk customers.
Q: How will the Hoya sputtering operation be integrated into WD?
- The acquired operation will be part of a wholly owned Singapore
subsidiary of WD, operating as a part of WD's media operations.
Q: Will WD break apart the Hoya finished media operation and move assets
and positions to Malaysia?
- WD intends to maintain the media sputtering operation in Singapore.
Q: How does this acquisition change WD's competitive profile versus the
other large vertically integrated players, Seagate and HGST?
- We expect it to be accretive to our earnings.
Transaction/Background Questions
Q: What are the terms of the transaction?
- The transaction is structured as an asset acquisition consisting mainly
of fixed assets and inventory. From a liabilities perspective, we are
assuming mainly the facilities leases, current trade payables related
to the existing assets and future employee expenses related to the
hired workforce.
- From an employee liability perspective, Hoya will settle all existing
employee obligations as of the close date. We will assume employee
obligations earned or created after the close date for all employees
that are hired by WD.
Q: When will the transaction close?
- The transaction will close as soon as we receive certain customary
governmental approvals and satisfy certain other customary closing
conditions, which we expect this calendar quarter.
Q: Are any anti-trust filings required?
- The transaction is beneficial to our customers and is not subject to
anti-trust filings or approvals.
Q: Is there a break-up fee?
- No.
Q: How are you going to finance the transaction? How much cash will you
use? Do you intend to refinance/issue a convertible/other?
- The acquisition will be funded with approximately US$235 million in
cash.
- We intend to finance the transaction from the existing internally
generated cash of our foreign subsidiaries.
Q: When will the operation be fully integrated into WD?
- The business is producing finished media at high volumes today for
multiple customers; we expect to transition exclusively to WD
requirements over a four month period.
Q: How long has Hoya been in the media business?
- Hoya's Singapore operation was established in 1995, as an indirect
wholly owned subsidiary of Hoya Japan.
General
Q: Will you be able to make new generation products with the equipment
being purchased?
- Yes, the equipment being purchased is similar to what is deployed in
WD's facilities today and is extendable to future technology.
Q: How does this fit into your technology roadmap?
- The technology and assets being purchased are a good fit with WD's
product roadmap.
Q. What effect will this have to the media/substrate demand/supply
dynamic for WD and for the HDD industry?
- This capacity will substitute for planned WD internal capacity
additions.
Q: When do you expect to reach full capacity utilization? What will you
do with excess disks in the meantime?
- We do not expect any excess disks. We expect all output from the
facility to be utilized. We have agreed to supply Hoya customers for up
to four months while their customers arrange alternative supply. The
balance of output will be directed to WD.
Q. Where will the substrate come from? Is there enough substrate supply
to allow full capacity utilization especially in the near term?
- The asset purchase agreement includes a provision for Hoya to supply
incremental glass substrates to WD to meet the current capacity of this
media facility. WD will continue to source its overall substrates
requirements from multiple suppliers, including a portion through a
separate arrangement with Hoya.
Q: What is the age and condition of the PP&E? How does it make sense to
buy used instead of new?
- The equipment has been continually upgraded and well maintained to
perform at the same level as new equipment and is consistent with WD's
forward technology roadmap requirements.
Q: Are you acquiring any of Hoya's substrate business?
- We are not acquiring any of Hoya's substrate assets.
Q. Has Hoya any commitments to service other customers?
- We will honor all legally binding supply commitments with other parties
if such parties choose to do so.
Q: What is your internal/external model for media supply?
- Our stated goal for both heads and media is approximately 80% internal
capability.
Q: Do you intend to use Hoya's facilities for your internal glass media
needs?
- Yes, and for all media solutions over time.
Q: What role will Hoya's Singapore management play in the combined
business?
- A large and significant role. We are acquiring an efficient, well-run
business with good capability and technology. We respect the Hoya
management team and look forward to the combination.
Q: Are you intending to keep Hoya employees?
- Yes. We believe that the unique skill-set of Hoya's highly qualified
employee base is a critical component of the value Hoya's assets will
deliver to Western Digital.
Q: What do you anticipate WD customer reaction to be with regard to the
acquisition?
- We believe our customers will view the transaction as very positive as
it enhances availability and security of supply.
Q: What do you anticipate WD supplier reaction to be with regard to the
acquisition? How will your other media suppliers react?
- We have very strong relationships with our other suppliers. We will
continue to source a large amount of media from external sources (~20%
of our needs). Access to external volume and technology will continue
to be a key to our future success.
Q. How does this affect your future growth plans? Do you intend to grow
your presence in Singapore? Will you slow down growth in Malaysia or
Thailand?
- We anticipate HDD demand growth will drive continued investments in all
our strategic manufacturing locations including Malaysia, Thailand and
now Singapore.
Q: What are the financial benefits of the transaction?
- The main benefit is to secure supply.
- Cost benefits will be moderate.
- There are a number of variables that have to be taken into account. In
the near-term, it will not have a material effect on our financials.
Q: What will this transaction do to your costs?
- Media production is a capital and technology intensive, rather than
labor intensive, activity. We expect costs to be competitive with our
other media manufacturing sites, as we progress towards full capacity
utilization. Further, we expect our overall media cost to improve from
cross-pollination of efficiencies among sites.
Q: When do you expect to reach full capacity utilization?
- We expect full utilization to occur by the second quarter post-closing.
Q: How much incremental capex will you need post-acquisition?
- Initial start up and WD customization spending will be in the order of
US$30 million over the next year. Subsequent capex will be consistent
with our current spending relative to internal run rate.
Q: What external sales have you estimated for the media business?
- The asset purchase agreement includes specific volume required by Hoya
to support its customers' needs over the initial four months after
transfer.
Q: Will you have any synergy savings from R&D and opex?
- We will get the leverage of increased production from our existing R&D
and opex spending.
- The impact on our opex spending will be minimal; we will not be
changing our existing opex model of 9 to 10% of revenue.
Q: How does this impact your balance sheet?
- Most of the value will be in PP&E and inventory, partly offset with
some A/P.
- Some IP and goodwill.
- Inventory turns will be impacted slightly, but it will not be enough to
affect our current model of 12 to 16 turns.
Q: Can you expand a bit on the impact on your model?
- We will evaluate it more as we progress but we anticipate that it will
enhance our ability to expand our gross margin range from our current
18 - 23%. A more vertically integrated business will require a bit more
inventory and we will act to optimize the inventory levels as we always
do. We need to do a bit more work to finalize the numbers, but we
believe that we will still be very competitive in the industry.
Forward Looking Statements
This press release and the questions and answers contain forward-looking
statements concerning the employment and integration of Hoya's media
sputtering workforce; the expected timing of and ability to consummate the
proposed acquisition; the impact to WD, including the anticipated benefits
and costs, of the proposed acquisition; and the plans, strategies and
objectives of management for future operations. The foregoing forward-looking
statements are based on WD's current expectations and are subject to risks
and uncertainties that could cause actual results to differ materially from
those expressed in the forward-looking statements, including: the risk that
the acquisition will not close or that closing will be delayed; the failure
to integrate successfully Hoya's technology, employees or operations; the
risk that Hoya's or WD's business may not perform as expected due to
transaction-related uncertainty or other factors; the impact of recent
uncertainty and volatility in global economic conditions; supply and demand
conditions in the hard drive industry; actions by competitors; unexpected
advances in competing technologies; uncertainties related to the development
and introduction of products based on new technologies and expansion into new
data storage markets; business conditions and growth in the various hard
drive markets; pricing trends and fluctuations in average selling prices;
changes in the availability and cost of commodity materials and specialized
product components that WD does not make internally; and other risks and
uncertainties listed in WD's recent Form 10-Q filed with the SEC on Jan. 29,
2010, to which your attention is directed. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of
the date hereof, and WD undertakes no obligation to update these
forward-looking statements to reflect subsequent events or circumstances.
Western Digital, WD, and the WD logo are registered trademarks of Western
Digital Technologies, Inc. All other trademarks mentioned herein belong to
their respective owners.
SOURCE: Western Digital Corp.
CONTACT:
Bob Blair,
Investor Relations,
+1-949-672-7834,
robert.blair@wdc.com,
or Steve Shattuck,
Public Relations,
+1-949-672-7817,
steve.shattuck@wdc.com,
Western Digital Corp.
NEWS 
