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Western Digital recalls 400,000 hard drives

Things are getting worse by the week for Western Digital, which announced the voluntary recall and also said quarterly losses will be greater than expected.

Things are getting worse by the week for Western Digital.

The Irvine, California-based maker of hard disk drives announced this week that it will recall approximately 400,000 of its 6.8GB per platter Caviar desktop hard drives, its flagship product, because of a faulty internal chip. The chip, which affects the disk drive motor, causes problems to erupt in about six to twelve months, said observers.

A hard drive is the most common way to store data on a computer.

Last week, the company announced that losses for its first fiscal quarter, ending October 2, will come in at between $1.20 and $1.30 per share, greater than the then-consensus loss estimate of $1.07.

The hard drive recall will likely result in even larger financial losses, said analysts, and will further increase the pressure on a company that in some ways is falling behind its closest competitors in a fierce market. Although hard drive shipments for the industry as a whole continue to increase annually, prices are dropping faster.

"They are in trouble," said Jim Porter, analyst at Disk Trend. "This is an overlay to the other losses."

Western's problems partly derive from the current state of its technology portfolio, said Porter. The 6.8GB per platter Caviar drives currently constitute the company's mainstream offering. Competitors, however, are selling drives with platters with densities of 8.6GB and larger.

Western also continues to license Giant Magnetoresistive (GMR) technology, necessary for drive heads, from IBM, which lowers the margins kept by the company.

"Western Digital will likely lose more money than previously thought in calendar quarter Q3," wrote Gillian Munson, hardware analyst with Morgan Stanley Dean Witter in a report today. "We are lowering our earnings per share estimate from -$1.28 to -$1.43."

Nonetheless, Munson said that a fix could be relatively easy and that the company could easily get back on track if computer makers don't "negatively punish the company too much for the recall."

"Western Digital is taking a conservative course by recalling the affected lot of this product," said Matt Massengill, Western's COO, in a prepared statement.

The faulty chip was incorporated into approximately 1 million drives manufactured between August 27 and September 24. Of that number, about 400,000 have been sold. Customers who believe that they may have a defective drive are being advised to visit Western Digital's site to start the process to obtain a replacement, if necessary.