Western Digital Forced to Retrench

Storage firm Western Digital(WDC Quote) is cutting 2,500 jobs, or 5% of its workforce, as the company attempts to cope with weakening demand for its hard drives.

The Lake Forest, Calif., company also lowered its second-quarter revenue guidance from between $2.025 billion and $2.15 billion to a range between $1.7 billion and $1.8 billion. Analysts had estimated revenue of $1.98 billion.

"In the current macroeconomic climate, we expect demand weakness to last well into the middle of the 2009 calendar year," explained Western Digital CEO John Coyne, in a statement released Wednesday. "Consequently, we are taking additional steps to immediately reduce production capacity and operating expenses."

Western Digital's stock slipped early, but lately it rose 2.4% to $12.80.

The company's cost-cutting efforts include the closing of one of its three hard-drive manufacturing facilities in Thailand and one of its two plants in Malaysia. The firm is also lowering compensation to its executive officers, board and senior management.

In documents filed with the SEC, Western Digital confirmed that Coyne's annual base salary has been cut by a third from $900,000 to $600,000. CFO Timothy Leyden is taking a 25% pay cut, which will see his salary fall from $550,000 to $412,500.

Western Digital, which competes with Hitachi(HIT Quote), Fujitsu and Seagate(STX Quote), also plans to lower its manufacturing hours by approximately 20% by reducing its use of temporary workers and cutting shift overtime. Overall, the company aims to slash capital spending for fiscal year 2009 from $750 million to approximately $500 million.