Slide 1: February 25, 2002
February 25, 2002 Western" Matt Massengill Z Dieta” Chairman of the Board &CEO
Slide 2: Forward-looking statements
This presentation, and the answers to your questions, will contain forward-looking statements, including statements relating to: The Company’s Q3 guidance and outlook; CY2002 catalysts for growth, goals and watch list; the Company's business model; and growth forecasts and opportunities in current a
Slide 3: FQ2 Results
FQ2 Results mu Fifth consecutive quarter of HD profitability @ $15.3M m Revenue of $575M, up 30% sequentially = Unit volume of 7.7M, up 43% sequentially = Full quarter of shipments for Xbox = Gross margins @ 12.3% m New venture losses declined to $4.9M m Consolidated profit of $9.2M, EPS of $.05 m H
Slide 4: FQ3 Guidance — As of January 24, 2002
FQ3 Guidance — As of January 24, 2002 m Revenue of $550M to $575M = Unit volume of 7.5M to 7.7M = Gross margins ~12% m HD profits of $10M to $13M m New venture losses ~$4.6M = Consolidated profit of $5M-$9M, EPS of $.03-$.04 As of Today - Guidance Re-affirmed Y Western” f. Digital
Slide 5: Current Environment
Current Environment = As contemplated in our Q3 Plan, business strong in January, February; March will determine the quarter m Industry channel inventories in balance; WD inventories at planned levels = Pricing reasonable, as anticipated @ Solid execution, continued OPEX focus @ WD Vy Western® % Dig
Slide 6: In PC Market's Toughest Year, WD Excelled
In PC Market’s Toughest Year, WD Excelled CY2001 Snapshot ¥ Reestablished as premier desktop drive supplier ¥ Developed strong relationships in emerging markets ¥ Achieved industry-leading expense structure ¥ Sustained HD profitability ¥ Improved cash position Y Reduced debt to ~$100M Y Minimized ne
Slide 7: Stable Gross Margins in Difficult Industry Cycle
Stable Gross Margins in Difficult Industry Cycle WD HD Desktop GM % a & tui 0% 5% 10% 71 | 15% Q1'00 Q200 GB'00 Q4'00 Q1'01 2'01 A301 Q4'O1 A102 G2'02 FISCAL YEAR "3F Western” Note: Exolides Enterprise business and nonrecurring charges. Digital
Slide 8: Disciplined Operating Expense Management
Disciplined Operating Expense Management 14.2% 14.2% 16.0% 12.4% 14.0% 106% + 120% 8 10.0% & 2 so% = sou § & 40% 20% 9 + + 0.0% FY'99 FYO0 Frot 02°02 Annualized mmm Expenses —2-Pereent of Revenues Vy Western® % Digital
Slide 9: Execution, Industry Consolidation & New Markets Create Opportunity for Western Digital
Execution, Industry Consolidation & New Markets Create Opportunity for Western Digital Q4 2000 Q4 2001 wIBM Maxtor Samsung Seagate OF ujitsu Quantum 3.5” EIDE Market Souree: IDC Vy Western® % Digital
Slide 10: WD101 - A Simple & Effective Business Model
WD101- A Simple & Effective Business Model Simple Organizational Structure Minimal vertical integration Two assembly locations: Malaysia and Thailand Centralized key di ion making: Design, marketing, factory planning All HD related entities are 100% owned and consolidated All > 50% owned new venture
Slide 11: WD101 - A Simple & Effective Business Model
WD101 - A Simple & Effective Business Model Revenue: 99% from one line of business — hard drives Costs: Purchased components, labor and overhead Manufacturing process: Assembly and test Customers: Large, well-funded manufacturers and resellers — 73% of Q2 revenue with 20 customers Good Execution Red
Slide 12: How WD Removes or Limits Costs
How WD Removes or Limits Costs m Recognize you are in a commodity business = Relentlessly focus on operating and manufacturing costs to achieve and maintain industry's leading expense structure = Continuously design efficiencies into your products and manufacturing processes m Work with suppliers to
Slide 13: Our Primary Market is Still High Volume... With Upgrade Cycle Looming
Our Primary Market is Still High Volume... With Upgrade Cycle Looming Desktop PC Forecast 2001 2002 2003 2004 2005 Se JDC Dec. UF 2 Source: DC Dee. YE Western” fa Digital
Slide 14: The Case for Moderating Desktop HD ASPs
The Case for Moderating Desktop HD ASPs m Potential drivers for ASP moderation: — Lower platter counts — Reaching cost entitlement — Raw cost reductions vs. competitive pressures $100 $90 $30 $70 0 $50 40 $30 $20 $10 $0 Desktop HD Industry ASP 8 8 Qt'00 Q2'00 m O3'00 Western Source: TrendFocus Digit
Slide 15: Leveraging Existing HD Business to Maximize Contribution Margin
Leveraging Existing HD Business to Maximize Contribution Margin m Addressing new market areas that carry minimal fixed costs m Related OPEX is covered by existing infrastructure au Incremental costs are primarily variable - scaling up or down with related revenue m Result: Higher contribution margin
Slide 16: HDs Have Entered or Are Poised to Enter Other High Volume Markets
Slide 17: PVR, Gaming HD Forecast
PVR, Gaming HD Forecast Units (in 000s) 1999 = PVRiGame Console 2000 2001 2002 2003 2004 2005 Western” Digital
Slide 18: Why the Hard Drive Matters to Consumer Electronics & Game Systems
Why the Hard Drive Matters to Consumer Electronics & Game Systems Ability to store game patches and operating system upgrades m Improved web browsing (cache page content, scripts, etc.) = Locally store e-mails including those with attachments m Download and store installable applications and game de
Slide 19: EIDE/Serial ATA Drives in Enterprise
EIDE/Serial ATA Drives in Enterprise Forecasted Penetration of Workstations and Servers by EIDE Drives 20004, 2001 2002 2003 2004 » Source: IDC, August '0f % Western” f. Digital
Slide 20: Why EIDE/Serial ATA in Enterprise?
Why EIDE/Serial ATA in Enterprise? m Price favors EIDE = Client workloads and performance favor EIDE m EIDE solutions for workstation/servers are emerging m Serial ATA eliminates barriers to SCSI replacement Vy Western® % Digital
Slide 21: HD Operating Income Scenarios
HD Operating Income Scenarios Fo2"02 Annualized HD Op. Income of siiM 36 52 68 84 100 HD Operating Income (Millions) Revenue drivers Margin drivers Overall PC market growth rates Market dynamics WD share position Enterprise New market growth PVRigame PYR Enterprise & small form factor Cost controls
Slide 22: CY 2002 Goals and Milestones
CY 2002 Goals and Milestones = Grow profitably = Maintain highly leveraged expense structure m Penetrate new customers in PC and new markets = Neutralize new ventures’ impact on P&L m Fund working capital needs from cash generation Y Western” f. Digital
Slide 23: Watch List for 2002: Developments Shaping Hard Drive Industry
Watch List for 2002: Developments Shaping Hard Drive Industry = HDjindustry consolidation aftermath = Potential for — Effective industry management of additional | Supply-demand equation consolidation — Pricing moderation m IT upgrade... a — Increased opportunities from Fujitsu question of when desk
Slide 24: February 25, 2002
February 25, 2002 Matt Massengill ZA Western® Chairman of the Dood Digital & CEO
Slide 25: Western Digital
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