Presentation on theme: "Western Digital Corporation Concordia University, Irvine Corporate Finance Janet Muller Latique Simmons Jeff Roeser Junsung Kim Parham Noori Cody Summerville."— Presentation transcript:
Western Digital Corporation Concordia University, Irvine Corporate Finance Janet Muller Latique Simmons Jeff Roeser Junsung Kim Parham Noori Cody Summerville
Western Digitial Company Profile Industry: Data storage Devices Main Product lines: External, Internal storage, network products, home entertainment Headquartered : Irvine, CA year in business - Founded in Pc hard Drive design, manufactures and sales
Western Digitial Company Profile Annual revenue, Earnings Annual revenue($thousand) : : : 9850 Annual Earnings($thousand) : : : 3674
Western Digitial Company Profile Total Assets($Million) : : : 7328 Market Capitalization B Stock price, range(before and after crisis) - The lowest point : , $ Tthe highest point : , $45.82
Western Digitial Company Profile Stock market where traded : NYSE Target market : USA, Asia Main suppliers - Netac Technology Co. Ltd, Ma Labs, Evertek Computer corp. Main competitors : STX, TOSBF.PK
Description Proposed new type of video recorder named TV Drive can connect to any device like TV and VCR And have the capabilities of recording any type of media play blue ray & regular DVDs and will have WIFI capabilities
Assumption Sunk Costs: – Research and development cost : $30mill USD – Market research study cost : $3mill USD Sold in 2 variations: – Electronic Device: external unit price : $250 USD – TV Manufacturing Part: internal unit price : $125 USD Initial capital investment : $275 mill USD MACRS 5-yr depreciation model The discount rate/ cost of capital: 28% The resale value : $10.5mill USD
Ratio Analysis Seagate a close competitor balance sheet and income statement Comparing WDC and SGC Liquidity and leverage ASSET Management Profitability
Ratio Analysis Liquidity Ratios: Current ratio Quick ratio
Ratio Analysis Leverage: Debt ratio Debt to Equity
Data for forecasted ratio ASSET Management Inventory turnover Average collection Total Asset Turn
Data for forecasted ratio Profitability Gross profit Profit Margin P/E ratios
Strategic Long Range Plan Who are we? – Western Digital Corporation – Hard drive industry Where would we like to be? – Expand into different markets – Expand to new buyers Increase in demand for SSDs How do we plan to get there? – Rely heavily on R&D – Develop and maintain relationships with our customers
SWOT: Strengths Strong research and development – Over past 3 yrs R&D expenses grew 29% annually – Strong R&D led to the launch of the My Book – Helps company to be successful in product categories Extensive product offerings – Desktops, mobile computers, enterprise & consumer markets – Brand name products; WD Caviar, WD VelociRaptor, WD Scorpio Gain expertise from acquiring smaller innovative companies Changing product mix – Shifting towards non-desktop products; gaining market share – Strengthening position in external storage space markets
SWOT: Weaknesses Dependency on OEMs and distributors – Original equipment manufacturers & Original design manufacturers; 54% of revenues in 09 – With relying on a few customers it reduces risk Lack of diversification – Western Digital; focuses on a few products & channels. – Their competitors like Samsung and Hitachi are much more broad with several channels of products.
SWOT: Opportunity Increasing Demand for HDD – Projected to grow 5% annually till 2012 – In terms of TB; size of hard drives, it is expected to grow CAGR 38% till Increasing Demand for SSD; Solid State Disks – Due to increased storage capacities – Super technical advantages
SWOT: Threats Competition to have the best flash memory – Everyone is competing on price and storage capacity; fierce market. Competition for Large Customers – It is hard to differentiate amongst each other so obtaining a large customer is a big deal.
Challenge with CF model The initial difficulties - over-estimated amounts in the sales volume - an unusually high NPV & IRR percentage - an payback period of less than one year Adjustments - Lower our initial sales forest -Increase the expenditure (175Mill275Mill) Results of adjustment - NPV : $622M - IRR : 0.84% - Payback : 2.72yrs
Best & worst case scenario Best case scenario - Assumption increase our sales by 15% & decreasing our cost by 10%, - results NPN : raised from $622million to $822 million Payback : decreased from 2.72yrs to 2.42 yrs IRR : IRR was raised FROM 84% to 102%. Worst case scenario - Assumption 25% decrease in sales and 20% increase in cost of goods sold - Results NPV : decreased from $622million to $261.7 million Payback : increased from 2.72yrs to yrs IRR : IRR was decreased FROM 84% to 154%.
Price sensitivity Assumption - increase 15% in price Results - NPV : raised from $622million to $425 million - Payback : decreased from 2.72yrs to 2.65 yrs - IRR : raised from 84% to 74%. Assumption - Decrease 25%, 15% and 10% in price Results - Decrease 25% Decrease 15% Decrease 10% NPV -$90M $39M $103M IRR 17% 32% 40% Payback 4.88yrs 3.78 yrs 3.46yrs.
WDC & Project Planning Goal is to show a realistic potential forecast of the companys future financial sheets – Sought to implement ideas formed from SLRP 10% increase in revenue (improve turnover ratios) 5% decrease in liability accounts (improve collection period) After first year there is 3% increase in asset for conversion – Impact of TV Drive Project Created Annual Income Stmt then Balance Sheet – Maintain relationship between Revenue, COGS with A/P (20% of COGS), A/R (12% of revenue) and Inventory (7.5% of COGS)
Projected 2011 Income Statement for WD
WDC & Project Planning Created Annual Income Stmt then Balance Sheet – Maintain relationship between Revenue, COGS with A/P (20% of COGS), A/R (12% of revenue) and Inventory (7.5% of COGS) Quarterly Statements breakdown yearly change – Historical % of change for each quarter determines increase to balance sheet accounts, and revenue stream Quarter 1 accounts of 21% yearly change Quarter 2 accounts for 27% yearly change and so on
Projected 2011 B/S for WD
Sales Proposal Pricing Structure Step one: was to get our Sales Volume from the Project CF Second; split up Sales Volume in three proportions, small, medium, and big. After brainstorming together as a whole we came up with a 10%, 30%, and 60% ratio; small -> big Third step; Volume Discount to medium and big customers; 10% & 20% Lastly, we took the totals of each volume respectively for each section of customers and then gave them their discount if they fell into the medium or big category.
WACC First: we needed to determine how much equity the company had along with their long term debt. Second: calculate cost of debt and cost of equity using the beta, S&P percentage, and the percentage of a 10 year bond. Third: lay out possible scenarios Fourth: choose one of the scenarios that would give us the best possible outcome.
WACC (cont.) Last: calculate the WACC with the chosen amount of debt (5%) and equity (95%). After determining the WACC we needed to calculate the PV of our bonds. We issued 275,000 bonds at 6% for 10 years but calculated their PV at the end of 5 years. After recalculating the WACC with our new debt and equity it changed but was very slight.
Contract Offer, Acceptance, Consideration Termination – Non Acceptance – Customer convenience – Change of control Terms & Conditions – Defines how a contract is to be implemented Whats being sold Price per unit How to be shipped, return policy, etc. How the items are to be paid for
Conclusion Our model is sensitive to decrease in price would impart CF if products are sold below as it decrease revenue Therefore sales discounts would impact profitability Due to the high CF produced from operating activities, our model is highly responsive to favorable production conditions However it also contributes to having significant changes in our net working capital Therefore when revenue is decreased or cost of goods are raised our model struggles to maintain enough cash flow to sustain itself and could need to funds from company until reaches a profitable year.