Presentation on theme: "Western Digital Corporation"— Presentation transcript:
1 Western Digital Corporation Concordia University, IrvineCorporate FinanceJanet MullerLatique SimmonsJeff RoeserJunsung KimParham NooriCody Summerville
2 Western Digitial Company Profile Industry: Data storage DevicesMain Product lines: External, Internal storage, network products, home entertainmentHeadquartered : Irvine, CAyear in business- Founded in 1970- Pc hard Drive design, manufactures and sales
3 Western Digitial Company Profile Annual revenue, EarningsAnnual revenue($thousand): 8074: 7453: 9850Annual Earnings($thousand): 1822: 2292: 3674
4 Western Digitial Company Profile Total Assets($Million): 4875: 5291: 7328Market CapitalizationBStock price, range(before and after crisis)- The lowest point : , $10.38- Tthe highest point : , $45.82
5 Western Digitial Company Profile Stock market where traded : NYSETarget market : USA, AsiaMain suppliers- Netac Technology Co. Ltd, Ma Labs, Evertek Computer corp.Main competitors : STX, TOSBF.PK
6 Description Proposed new type of video recorder named “TV Drive” can connect to any device like TV and VCRAnd have the capabilities of recording any type of mediaplay blue ray & regular DVDs and will have WIFI capabilitiesJUN
7 Assumption Sunk Costs: Sold in 2 variations: Research and development cost : $30mill USDMarket research study cost : $3mill USDSold in 2 variations:Electronic Device: external unit price : $250 USDTV Manufacturing Part: internal unit price : $125 USDInitial capital investment : $275 mill USDMACRS 5-yr depreciation modelThe discount rate/ cost of capital: 28%The resale value : $10.5mill USDJUN
8 Ratio Analysis Seagate a close competitor balance sheet and income statementComparing WDC and SGCLiquidity and leverageASSET ManagementProfitability
9 Ratio AnalysisLiquidity Ratios:Current ratioQuick ratio
10 Ratio AnalysisLeverage:Debt ratioDebt to Equity
11 Data for forecasted ratio ASSET ManagementInventory turnoverAverage collectionTotal Asset Turn
12 Data for forecasted ratio ProfitabilityGross profitProfit MarginP/E ratios
13 Strategic Long Range Plan Who are we?Western Digital CorporationHard drive industryWhere would we like to be?Expand into different marketsExpand to new buyersIncrease in demand for SSD’sHow do we plan to get there?Rely heavily on R&DDevelop and maintain relationships with our customers
14 SWOT: Strengths Strong research and development Over past 3 yrs R&D expenses grew 29% annuallyStrong R&D led to the launch of the My BookHelps company to be successful in product categoriesExtensive product offeringsDesktops, mobile computers, enterprise & consumer marketsBrand name products; WD Caviar, WD VelociRaptor, WD ScorpioGain expertise from acquiring smaller innovative companiesChanging product mixShifting towards non-desktop products; gaining market shareStrengthening position in external storage space markets
15 SWOT: Weaknesses Dependency on OEMs and distributors Original equipment manufacturers & Original design manufacturers; 54% of revenues in 09With relying on a few customers it reduces riskLack of diversificationWestern Digital; focuses on a few products & channels.Their competitors like Samsung and Hitachi are much more broad with several channels of products.
16 SWOT: Opportunity Increasing Demand for HDD Projected to grow 5% annually till 2012In terms of TB; size of hard drives, it is expected to grow CAGR 38% till 2012.Increasing Demand for SSD; Solid State DisksDue to increased storage capacitiesSuper technical advantages
17 SWOT: Threats Competition to have the best flash memory Everyone is competing on price and storage capacity; fierce market.Competition for Large CustomersIt is hard to differentiate amongst each other so obtaining a large customer is a big deal.
18 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 yearAdjustments- Lower our initial sales forest-Increase the expenditure (175Mill→275Mill)Results of adjustment- NPV : $622M- IRR : 0.84%- Payback : 2.72yrs
19 Best & worst case scenario Best case scenario- Assumptionincrease our sales by 15% & decreasing our cost by 10%,- resultsNPN : raised from $622million to $822 millionPayback : decreased from 2.72yrs to 2.42 yrsIRR : IRR was raised FROM 84% to 102%.Worst case scenario25% decrease in sales and 20% increase in cost of goods sold- ResultsNPV : decreased from $622million to $261.7 millionPayback : increased from 2.72yrs to yrsIRR : IRR was decreased FROM 84% to 154%.
20 Price sensitivity - increase 15% in price Assumption- increase 15% in priceResults- NPV : raised from $622million to $425 million- Payback : decreased from 2.72yrs to 2.65 yrs- IRR : raised from 84% to 74%.- Decrease 25%, 15% and 10% in price- Decrease 25% Decrease 15% Decrease 10%NPV $90M $39M $103MIRR % % %Payback yrs yrs yrs.
21 WDC & Project PlanningGoal is to show a realistic potential forecast of the company’s future financial sheetsSought to implement ideas formed from SLRP10% increase in revenue (improve turnover ratios)5% decrease in liability accounts (improve collection period)After first year there is 3% increase in asset for conversionImpact of TV Drive ProjectCreated Annual Income Stmt then Balance SheetMaintain relationship between Revenue, COGS with A/P (20% of COGS) , A/R (12% of revenue) and Inventory (7.5% of COGS)
23 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 changeHistorical % of change for each quarter determines increase to balance sheet accounts, and revenue streamQuarter 1 accounts of 21% yearly changeQuarter 2 accounts for 27% yearly change and so on
26 Sales Proposal Pricing Structure Step one: was to get our Sales Volume from the Project CFSecond; 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 -> bigThird 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.
27 WACCFirst: 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 scenariosFourth: choose one of the scenarios that would give us the best possible outcome.
28 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.
29 Contract Offer, Acceptance, Consideration Termination Non Acceptance Customer convenienceChange of controlTerms & ConditionsDefines how a contract is to be implementedWhat’s being soldPrice per unitHow to be shipped, return policy, etc.How the items are to be paid for
30 Conclusion Our model is sensitive to decrease in price →would impart CF if products are sold below as it decrease revenueTherefore sales discounts would impact profitabilityDue to the high CF produced from operating activities, our model is highly responsive to favorable production conditionsHowever it also contributes to having significant changes in our net working capitalTherefore 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.