Western Digital: Growth and Transformation LCDG Capital Meixi Chen Ada Del Rosso Amir Ganaba Richard Graham Alyson Laux

Buy Highlights Successful Transformation of Business Model Price - $38.18 Target - $47 Buy Successful Transformation of Business Model High Value Products dominate the Product Mix Cost Structure as a Sustainable Competitive Advantage Promising Growth in Emerging Markets Position in the 2-yr cycle $24 $47 $60 Analyst Estimate Range Source: Yahoo Finance

Competitive Landscape A Deeper Look at WDC… Overview Company History Key Financials Industry Positioning Competitive Landscape Competitive Landscape New Technology increases product differentiation Exports to emerging market promise revenue growth Entering the Maturity Stage of the Life Cycle Key Success Factors Production Inputs make up majority of budget Company History History of adapting to new markets Strategic use acquisitions and divestitures Key Financials 52 Week Trading Range: $23.06 - $45.09 P/E Ratio: 8.24 Shares Outstanding: 231.67M EPS: 4.63 Market Cap: $8.85B Debt/Equity: 6.78 Positioning Back to Basics Strategy 30% Market Share Vertical Integration Market Profile 4 quadrants – company history, financial metrics, SWOT, Stock price chart Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands Exports are the leading market segment KSFs - Marketing differentiated products , Use of automated production, Quick adoption of new technologies, User friendly products Back to Basics Strategy - continued simple, strongly focused business strategy: making reliable hard drives with high efficiency and speed at a low price

New Products Consumer Electronics Branded Enterprise Increasing Demand in Storage Increase in WDC Products Branded Consumer Electronics We believe that enterprise hard drives, consumer electronic and media drives, and branded products will grow in WDC’s product mix. Focusing on these higher value product lines will allow WDC to continue growth in the face of declining ASPs and demand for traditional HDDs for desktop and notebooks Enterprise, Consumer Electronic, and Branded will Provide Strong Product Segment GrowthWe believe that these three segments will provide double digital revenue growth over the next five years. As more and more consumers need space to store their downloaded and recorded media at home, on the go, and at work, sales in these product segments will grow. These product lines will grow from being 24% of current sales to 38% of sales in 2015. Enterprise Source: Company Data and Revenue Projections

Capturing a Growing Market New Markets Geographic Mix Asia Growth Rates Source: Company Data and Revenue Projections Capturing a Growing Market PC shipments up 8.8% in 2010 Economy improvements Growth of Wealth in Emerging Nations Believe shipments to asia will be up an average of 10% per year for the next 5 years Source: Company Data and Revenue Projections

Cost Structure Market Leader with Experience Economies of Scale HDD component vertical integration Responsive and Flexible Production Process Hitachi acquisition proves thesis successfully cope with the falling price of memory and highly cyclical demand. This ensures that WDC continues to provide stable cash flows to finance capital expenditures or acquisitions. We project that both top cycle margins along with bottom cycle margins will improve when compared to the past. Source: Company Data and Revenue Projections

Potential Risks Competitive Environment Market Cannibalization Intensifying Competition in the industry Average Selling Price uniformly decreasing Varied competitors – Pureplay & Conglomerates Market Cannibalization Flash based Solid State Drives (SSDs) Tablets Cloud Computing Technologies

Competitive Environment Western Digital Operates in a Highly Competitive Market Major Competitors Threat Level Reasons Established market leader; directly competes with WDC in all segments Well Positioned in SSD market but lacks focus in HDD market Manufacturer of media player; Data Storage service provider Acquired Fujitsu’s HDD business and gained market share Major player in the SSD market; but no representation in HDD Market Pure play Conglomerates SSD = High Threat = Medium Threat = Low Threat

Competitive Environment Western Digital Operates in a Highly Competitive Market Major Competitors Threat Level Reasons Established market leader; directly competes with WDC in all segments Well Positioned in SSD market but lacks focus in HDD market Manufacturer of media player; Data Storage service provider Acquired Fujitsu’s HDD business and gained market share Major player in the SSD market; but no representation in HDD Market Pure play Conglomerates Western Digital’s Advantage Hard Drive Products are substitutable Lower Average Selling Price High Quality Reputation Stable ROE over past years Conclusion Western Digital is Superior to Seagate and will be able to Capture Seagate’s Established Market Share in Traditional Segment SSD = High Threat = Medium Threat = Low Threat

Competitive Environment Western Digital Operates in a Highly Competitive Market Major Competitors Threat Level Reasons Established market leader; directly competes with WDC in all segments Well Positioned in SSD market but lacks focus in HDD market Manufacturer of media player; Data Storage service provider Acquired Fujitsu’s HDD business and gained market share Major player in the SSD market; but no representation in HDD Market Pure play Conglomerates WDC VS. Seagate SSD = High Threat = Medium Threat = Low Threat

Western Digital Operates in a Highly Competitive Market Conglomerates Western Digital Operates in a Highly Competitive Market Major Competitors Threat Level Reasons Established market leader; directly competes with WDC in all segments Well Positioned in SSD market but lacks focus in HDD market Manufacturer of media player; Data Storage service provider Acquired Fujitsu’s HDD business and gained market share Major player in the SSD market; but no representation in HDD Market Pure play Conglomerates SSD = High Threat = Medium Threat = Low Threat

Western Digital’s Advantage Conglomerates Western Digital Operates in a Highly Competitive Market Major Competitors Threat Level Reasons Established market leader; directly competes with WDC in all segments Well Positioned in SSD market but lacks focus in HDD market Manufacturer of media player; Data Storage service provider Acquired Fujitsu’s HDD business and gained market share Major player in the SSD market; but no representation in HDD Market Pure play Western Digital’s Advantage Focus on the Storage Device Market Low Average Selling Price Higher Quality Technological Innovation Ability Conclusion Western Digital provides higher quality products & faster technology update WD will expand through winning their market shares Conglomerates SSD = High Threat = Medium Threat = Low Threat

Market Cannibalization – SSDs High Cost High performance Low Power Consumption Small Physical Size SSD is a high growth market with great potential; but it will not replace HDD in the next Decade

Market Cannibalization – SSDs Take Away Western Digital has already started manufacturing SSD lines 10 Years transition period will allow WD to leverage its brand strength and R&D to capture market share High Cost High performance Low Power Consumption Small Physical Size SSD is a high growth market with great potential; but it will not replace HDD in the next Decade

Tablet & Cloud Computing Tablet – Competition with HDD However… Virtualized Storage Service May Erode the HDD Market However… HDD will still be used – demand from cloud service provider iPAD – Content Consumption Device Therefore, HDD is still required to store information & data Opens up opportunities for WD’s RAID Edition WD’s NAS – provide personal cloud opportunity

Valuation Summary Valuation balances depressed industry valuation with future growth potential Comparables more accurately captures current market valuation DCF more accurately captures potential growth Gordon growth given limited weighting Precedent transactions analysis not included due to lack of takeover potential

Comparable Companies LTM EBITDA LTM EBIT LTM Revenue 3.1x 20.8x 5.8x $38.45 $51.14

Key Ratios Project stable margins over 5 year period We project the firm will remain solvent Project declining ROA and ROE as industry enters mature stage Liquidity ratios suggest the firm is highly liquid

Western Digital: Growth and Transformation LDGC Capital Meixi Chen Ada Del Rosso Amir Ganaba Richard Graham Alyson Laux

Appendix Main Presentation Appendix Financials Future Outlook Risks Key Highlights Company Overview Conclusion Financials Sensitivity Analysis WACC PV Interest Earned on Cash Tax Treatment EPS and PE Analysis Capex Key Ratios Wall Street Consensus Future Outlook Risks New Products New Markets Cost Structure Overview Competitor Analysis Advantage over Seagate ROE Comparison Conglomerates Advantage over Conglomerates SSDs SSD Takeaway Tablet and Cloud Computing Financial Summary Strategic Insights WDC History of Innovation Seagate Technology Potential Acquisition Effects Hitachi Valuation Summary Comparable Companies Discounted Cash Flow

Sensitivity Analysis Sensitivity analysis shows roughly an average $25 price range for each DCF valuation methodology

WACC

PV Interest Earned on Cash Effect of interest earned on cash balance small

Tax holiday until 2020 in Malaysia substantially improves WDC’s EPS Tax Treatment Tax holiday until 2020 in Malaysia substantially improves WDC’s EPS

CAPEX Forecast Projected 2011 CAPEX consistent with management forecast Projected 2012-2015 CAPEX based on historical CAPEX as % of sales

EPS and P/E Analysis Average P/E: 8.9x 2006 2007 2008 2009 2010 2011E   2006 2007 2008 2009 2010 2011E Price $19.81 $19.35 $34.42 $26.36 $30.20 EPS $1.84 $2.57 $3.92 $2.12 $6.06 $2.70 P/E 10.77x 7.53x 8.78x 12.43x 4.98x 11.19x Average P/E: 8.9x

WDC has a History of Innovation 1: WDC Emerges from Bankruptcy 2: Begins Constructing own HDDS 3: Begins Multiple HDD models 4: Increases Product Variety 5: Enters Enterprise Market

Wall Street Consensus Standard and Poor’s

Domination in the Enterprise Market Seagate Technology Strength Weakness Business Overview: Seagate Technology (NASDAQ: STX) designs, manufactures, markets and sells hard disk drives. Its products are used in enterprise applications, client computer applications and consumer electronics. Seagate sells its products to OEMs, retailers and distributors. The company is direct competitor with WD in all areas. Industry leader Replaceable products Domination in the Enterprise Market Higher ASP High reputation Unstable ROE 1 Year Stock Performance

Potential Acquisition Effects Acquisition Currency Cash on Hand: $3.1B Characteristics of Potential Acquisition Market Cap of $1-3B Core Competencies: Semiconductors Electronic Components Software Development UI Dilution Effects Cash on hand more than adequate to finance future potential acquisitions motivated by vertical integration

Total Market Size

Recent Hitachi Acquisition Benefits Combined HDD Shipments 48% Push Revenues Ahead of Seagate Introduce fast SSDs Increase Enterprise Market Share from 11.4% to 46% Enhanced R&D Capabilities Better Cost Structure Improved Competitive Dynamics Weaknesses Potential Market Share Decline Increased Debt by $2.5 Billion Benefits Enhanced R&D Capabilities Expansion of a rich product portfolio Especially Enterprise Business Better market coverage Enhanced cost structure Improved competitive dynamics Weaknesses Increased debt by $2.5Billion Potential Market Share Decrease $4.3 Billion=$3.5 Billion Cash + $750 Million Equity