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Western Digital squeezed by weak demand; Lays off 2,500

Storage company Western Digital on Wednesday cut its revenue target and said it will lay off 2,500 employees, or 5 percent of its workforce, and idle plants. The culprit: Demand is "significantly below expectations.

Storage company Western Digital on Wednesday cut its revenue target and said it will lay off 2,500 employees, or 5 percent of its workforce, and idle plants. The culprit: Demand is "significantly below expectations."

Shop at any electronics retailer and you'll see Western Digital's bind. Three weeks ago, I bought a Western Digital 500 GB Passport drive for $139. Today, you can get the same drive at Best Buy for $99. Why? Demand is weak and inventories are bloated. Here's a look at Amazon's sales pricing:

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The damage to Western Digital: Revenue will be about $1.7 billion to $1.8 billion in its fiscal second quarter. In October, Western Digital projected revenue of $2.02 billion to $2.15 billion. Wall Street was expecting revenue of $1.97 billion. In a statement, Western Digital CEO John Coyne said "we expect demand weakness to last well into the middle of the 2009 calendar year."

To cut expenses, Western Digital plans the following:

  • Reduce compensation for management;
  • Lay off 2,500 people;
  • Cut manufacturing work hours by 20 percent through attrition, less overtime and temp worker cuts;
  • Close one of three manufacturing plants in Thailand and one of two facilities in Malaysia;
  • Shave capital spending for fiscal 2009 by $250 million to about $500 million.

Add it up and Western Digital expects to save about $150 million a year. It will take a charge of $150 million in the December and March quarters.