Special Note

Forward-Looking Statements

Statements in these posted remarks that relate to future results and events, and other forward-looking statements in these remarks, are based on Western Digital Corporation’s current expectations. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties. These risk factors include:

• the risk that our business will suffer during the integration of our recently acquired media operations;
• failure to quickly and effectively integrate our recently acquired media technology with our head technology;
• uncertainties regarding managing relationships with our external media suppliers, media component suppliers and external media customers;
• supply and demand conditions in the hard drive industry;
• actions by competitors;
• unexpected advances in competing technologies;
• uncertainties related to the development and introduction of products based on new technologies and successful expansion into new hard drive markets;
• business conditions and growth in the mobile PC, consumer electronics, enterprise, external hard drive and desktop markets;
• pricing trends and fluctuations in average selling prices;
• changes in the availability and cost of specialized product components that we do not make internally and commodity materials; and
• other factors listed in our periodic SEC filings and on this website in Risk Factors.
  

Robert Blair - Investor Relations

Before we begin, I want to remind you that we will be making forward-looking statements in our comments and in response to your questions concerning: the expected impact of WD’s acquisition of Komag, Incorporated on WD’s cost structure, WD’s utilization of its media assets, WD’s transition to PMR capability, WD’s media supply strategy, and WD’s financial performance; and WD’s current financial outlook for the September quarter.

These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainties that could cause actual results to differ materially, including those listed in our Form 10-K filed with the SEC on August 28, 2007, as well as the additional risk factors reported in the press release included as Exhibit 99.1 to the Form 8-K we furnished to the SEC today. We undertake no obligation to update our forward-looking statements to reflect new information or events, and you should not assume later in the quarter that the comments we make today are still valid.

In addition, references will be made during this call to non-GAAP financial results. Investors are encouraged to review these non-GAAP financial measures, as well as the reconciliation of these measures to the comparable GAAP results, in the press release included as Exhibit 99.1 to the Form 8-K furnished to the SEC today, a copy of which can be found under the “SEC Filings” link in the Investor Relations section of our Web site at www.westerndigital.com.

John Coyne - Western Digital President and Chief Executive Officer

Good afternoon, everyone. Thank you for joining us. On the call with me today is executive vice president and chief financial officer Tim Leyden.

We welcome the chance to speak with you today about our recently acquired media operation, how it will be integrated into WD, and the expected impact of the new operation on our overall business.

However, before I do that, I’d like to address our revised outlook for the first quarter of fiscal 2008, as outlined in our press release and 8K issued earlier today.

Our outlook for the September quarter has improved significantly since late July when we provided our original guidance. We have seen stronger demand, across all product lines and in all regions, but particularly in Europe, with better mix and pricing. After my remarks, Tim will provide details of our revised Q1 outlook and follow that with a summary of how the new WD media operation will contribute to our financial performance both in the near term and in the longer term as part of our integrated hard drive business.

The strategic acquisition of Komag by WD significantly improves our competitiveness for the long term in the growing, multi-billion dollar storage business. Coupled with our successful integration of magnetic heads since 2003, we now have access to and control over the supply of both key technologies in the manufacture of hard drives—heads and media. Having our own internal media supply will enable us to compete more efficiently with an improved cost structure.

We will be better able to invest in innovation and develop new technologies, thus enhancing our ability to compete at the cutting edge of this business.

It is important to consider this acquisition in the overall context of the highly-competitive worldwide hard drive industry-- where the pace of consolidation has accelerated rapidly in the last few years. This integrated head and media capability, providing control over the key technologies, and our demonstrated ability to execute in this business, further separates WD from the non-independent players in the market. It further enhances our ability to achieve our main goal of sustainable profitable growth.

The advantages of being able to capture the synergies between the key component technologies at the system level has become increasingly evident to us in the last several years as we attained these advances with magnetic heads. Like driving a high-performance automobile, it’s one of those things that is hard to appreciate until you’ve gotten behind the wheel. Integrating acquired operations quickly and efficiently is a core strength of WD and as of September 5th we began the process of ensuring a smooth and rapid integration of the new WD Media operation.

Now, let me turn to some of the basics of how we plan to integrate and transition the media operation:

• We have worked out orderly transitions with our external media customers and expect to be out of the external media business by the end of March 2008.
• We have begun to ramp volumes of WD internal media and once the external business is complete we will then continue the transition to a fully utilized internal assets. We expect that our media assets will be fully utilized by the end of calendar year 2008.
• We are currently planning high levels of utilization of our plated and polished substrate facilities, from a combination of internal needs and ongoing external sales.
• We understand the level of investment required to ensure a successful media operation and we are committed to make those investments. We are confident in our ability to complete the PMR transitions already underway, on both aluminum and glass substrates, as we work toward fully utilizing our acquired media capacity. The capital plans that Tim will share with you envisage the replacement of certain older equipment as well as the upgrade of other equipment to accomplish an eventual 100percent transition to PMR capability.
• In relation to glass, we are already volume-shipping 2.5 inch notebook drives with both our own PMR heads and internally sputtered glass media
• I also want to take this opportunity to reiterate our media supply strategy. While we plan to provide the majority of our media needs internally, we will continue to source significant volumes from the merchant market. We greatly value our supplier relationships and we look forward to continued mutually beneficial business in the future. This approach will enable WD to benchmark its internal technology against the best available merchant media, hedge our execution risk and share our total development costs. This approach has worked extremely well with heads and we believe it equally applicable for media.

Before handing the call over to Tim for the financial review, I wanted to say a word about our communications regarding our business going forward. While we appreciate the benefits of providing investors with as much transparency as possible on our business—especially in the short term as we transition to a largely internal media model—we have to balance that with the competitive disadvantages of providing too much detail. As a result, we will not break out or discuss the mix of products, utilization rates, or yields that are unique to the media operations. We will continue to provide guidance on our overall business which now includes integrated head and media operations. Short term, through March 2008 quarter, we will report external media and substrate sales on a combined basis. After that, when we transition to external substrates sales only, we will not break those out as they are not material to our overall financial results.

Through this acquisition, through the ownership of key technology, and through solid execution, we are now better positioned than ever as an integrated drive company to achieve our goal of sustained profitable growth. Integrating an operation such as this is the kind of opportunity that is relished here at WD. We look forward to demonstrating our success in this mission in the years ahead as one of the leaders in the hard drive industry. I would now like to turn the call over to Tim…

Tim Leyden, Western Digital Executive Vice President of Finance

Thanks, John. I would now like to describe the Komag acquisition and its impact on our September quarter results, and share with you the anticipated long-term impact of WD media operations on our business.

We completed the acquisition on September 5th. The purchase price was approximately $1.0 billion, which consists of the purchase of all of Komag’s outstanding shares at $32.25 per share, settlement of employee equity incentive programs, acquisition related accruals and other transaction costs.

The acquisition was funded through a combination of existing cash balances from WD and Komag combined with a $750 million borrowing from our previously announced $1.25 billion bridge financing facility. The amount drawn does not yet reflect borrowings for the retirement of the $250 million Komag convertible debt. We expect to retire this convertible debt by December 5th using a combination of existing cash and a second draw under the bridge financing facility. We expect to implement a long-term financing arrangement within 12 months.

The acquisition will be treated as a business combination for accounting purposes. This will result in fair value adjustments to Komag’s historical cost-based assets and liabilities, which netted to approximately $562 million on July 1, 2007. The difference between the historical cost-based net assets as of the acquisition date and the approximately $1.0 billion purchase price will be allocated for accounting purposes based upon valuation work that is currently underway. We currently expect that these valuation adjustments, which will be applied primarily to fixed and intangible assets, will result in incremental depreciation and amortization of between $20 million and $30 million per quarter. In addition, we expect to incur a one-time charge of up to $50 million during the current quarter for in-process research and development.

WD’s consolidated results will incorporate the impact of WD’s media operations from September 5th forward.

Our revenue for fiscal Q1 is expected to increase by approximately $30 million as a result of WD’s media and substrate sales to external customers during the month of September.

Operating expenses for fiscal Q1 are expected to increase by approximately $60 million, which includes approximately 4 weeks of WD’s media operations’ R&D and SG&A expenses, a portion of the transition expenses and an estimated $50 million one-time charge for in-process research and development.

Net interest income for fiscal Q1 is expected to decrease by approximately $6 million due to the acquisition funding.

Now, let me update you on our expected results for the current quarter.

During our call on July 26th, we provided the following guidance for the September quarter, which did not include any impact from the planned acquisition. At that time, we projected revenue of between $1.45 billion and $1.5 billion, gross margin of between 15.5percent and 16percent, operating expenses of approximately $126 million, net interest income of approximately $7 million, a tax rate of approximately 10percent, and earnings per share of between $0.43 and $0.47.

Improvements in demand, mix and pricing thus far in the quarter, coupled with the impact of the acquisition, are leading us to update our expectations.

On a stand-alone non-GAAP basis, we now expect revenue of between $1.6 billion and $1.65 billion, gross margin of approximately 17.5percent, operating expenses of approximately $135 million and earnings per share of between $0.61 and $0.65.

Factoring in the impact of the acquisition, our consolidated GAAP guidance for the September quarter is for revenue of between $1.63 billion and $1.68 billion and gross margin of approximately 17percent, including about $10 million of incremental depreciation and amortization from the accounting valuation adjustments. Operating expenses are expected to be approximately $195 million, including an estimated one-time charge for in-process R&D of $50 million. Net interest income will be around $2 million, and our tax rate will decrease to about 8percent. We now expect GAAP earnings per share of between $0.34 and $0.38, which is based on a share count of 225 million shares.

Turning to our business model, John outlined several of the operational benefits of the acquisition. As he indicated, we now expect to produce a significant amount of our media volumes internally, but we will continue to procure meaningful volumes from our existing media supply partners.

This media supply model should enable us to realize cost improvements leading to gross margin improvements of up to 300 basis points, excluding the impact of incremental depreciation and amortization resulting from the accounting valuation adjustments I discussed earlier. Ongoing operating expenses will increase by approximately $20 million per quarter, yielding total company operating expenses as a percentage of revenue of between 9percent and 10percent for business modeling purposes. Thus, our operating margins should increase by approximately 200 basis points and our net margin should increase by about 150 basis points, excluding the impact of the incremental depreciation and amortization.

We expect to reach these profitability metrics by the end of calendar 2008, after we have achieved our optimal internal capacity level.

From a balance sheet perspective, adding media manufacturing operations will reduce our inventory turns to between 12 and 14. Correspondingly, our cash conversion cycle will range from a positive 4 to a positive 8 days.

Capital expenditures for fiscal 2008 will increase to between $700 and $750 million, up from $600 to $650 million before the acquisition. Additionally, Komag has estimated capital expenditures of $15 million in the period from July 1st through September 5th. Depreciation expense will increase by approximately $30 million per quarter, excluding the incremental depreciation and amortization resulting from the accounting valuation adjustments to fixed and intangible assets.

As we indicated in our last call on this subject, we had been expecting this acquisition to be accretive to earnings by the first quarter of fiscal 2009, excluding the impact of incremental depreciation and amortization resulting from the accounting valuation adjustments. Based on our current plan for media production, we now expect this crossover point to occur in the fourth quarter of fiscal 2008, one quarter earlier than we had previously indicated.

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