Western Digital Forced to Retrench

The hard-drive maker launches a major restructuring effort to tackle the weak economy.
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Storage firm

Western Digital

(WDC) - Get Report

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


, 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







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, 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.

"We are taking these actions in order to strengthen our financial position and enhance the ability of our business to withstand an extended period of depressed demand," Coyne said.

The company expects to complete its restructuring by the end of March, with charges of around $150 million planned in the December and March quarters.

"Current and expected weakness in the PC market is the primary cause of weakness in the drive industry," wrote Jayson Noland, an analyst at R.W. Baird, in a research note released Wednesday. Noland maintained his neutral rating on Western Digital and reiterated his $15 price target for the company.

Western Digital is just the latest in a string of technology firms to feel the impact of the

economic slowdown




, for example, recently

disclosed plans

to layoff 1,500 staff members, or 10% of its workforce, and Japan's


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plans to cut

at least 8,000 temporary jobs by the end of March 2010.

Other tech companies

cutting jobs


BMC Software



Adobe Systems

(ADBE) - Get Report

, which recently

announced plans

to trim 600 jobs, or 8% of its workforce, because of slower revenue growth.