July 24, 2003 12:40 PM PDT

Western Digital to buy component maker

Hard drive maker Western Digital said Thursday that it will acquire the assets of Read-Rite, a manufacturer of hard drive components, for $95 million in cash.

Read-Rite makes magnetic heads and other components that are used to read data in computer disk drives. Despite recently launching a new line of heads for the latest generation of 80GB-per-platter drives, the company has been financially troubled. It filed for bankruptcy protection last June.

Western Digital's bid was approved by the judge who's handling Read-Rite's bankruptcy, the company said in a statement.

Lake Forest, Calif.-based Western Digital said the purchase will provide recording-head technology and more manufacturing flexibility. The company implied it could obtain drive heads from its own factories, acquired in the deal, or through another source in the future. It said, though, that it has an adequate supply of 80GB-per-platter drive heads for the foreseeable future.

The company has recently boosted its efforts to sell disk drives directly to consumers through retail stores. For example, it now sells Raptor, a high-performance server hard drive, in retail stores. The company is also considering entering the market for notebook PCs.

Read-Rite has several offices and manufacturing plants, including California locations in Fremont and Milpitas, along with another in Manila, Philippines. Western Digital said it also has the option to purchase Read-Rite's facilities in Bangkok, Thailand, where the company has a 7-acre site that includes three manufacturing facilities. The Thailand operation has $62 million in debt obligations, Western Digital said.

Western Digital said it would fund the acquisition, which is expected to close within 10 days, through working capital. The company said it will offer more details during a conference call after it reports earnings on Thursday.

Western Digital is expected to turn a profit of 19 cents per share for the past quarter, the fourth quarter in its fiscal year 2003, according to a survey by First Call. The quarterly performance is expected to come from solid management of inventory and prices during the quarter, wrote Kevin Hunt, an analyst with Thomas Weisel Partners, in a report issued this week.

Nonetheless, the disk drive business is "ruthlessly competitive," meaning Western Digital faces both market-driven and technological challenges. They include the increasing sales of notebook PCs, the transition to smaller-size drives in desktops and servers, and the need to tackle a new drive technology called perpendicular recording, Hunt wrote.

Despite the acquisition news, Western Digital shares were down by nearly 3 percent, to $11.91, at midday.

 

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