There isn’t much information about the results of the arbitration nor the cause of the dispute to begin with. We tried contacting Western Digital for comment and were told that all details regarding the arbitration are confidential. By the looks of the short press release posted on Western Digital’s site, on November 18th, Western Digital [NASDAQ:WDC] had a $525M award rendered against them by a sole arbitrator in a pending confidential arbitration action in Minnesota. For those unaware, Minnesota is a huge R&D center for Seagate [NASDAQ:STX] and is considered by many to be Seagate’s 2nd HQ.
Western Digital went further saying that the amount of the award does not include prejudgement interest, which will be subsequently determined. They stated that the $525M award came as a result of claims brought by Seagate claiming that Western Digital and an employee of Western Digital who was formerly employed by Seagate alleging, "Misappropriation of confidential information and trade secrets." While we don’t currently have any details regarding this supposed industrial espionage, if true, there could be dire consequences for Western Digital. Western Digital is already suffering pretty greatly at the hands of the hard drive supply shortage as a result of the Thai Floods – which affect 60% of their overall production.
While we’ll probably have to do some intense prodding in order to get some more information about the situation, we’re confident that eventually there will be more details leaked out. Currently, though, Western Digital is attempting to do damage control with their press release and is likely part of the reason why everyone at Western Digital was given the full week off for Thanksgiving. We’re sure that most Western Digital employees are probably not complaining either way. We’re not sure if the timing was coincidental or not, but it seems very interesting to say the least.
Western Digital’s statement went further, with the CEO John Coyne stating, "We do not believe there is any basis in law or fact for the damage award of the arbitrator. We believe the company acted properly at all times and we will vigorously challenge the award. This does not affect our ability to conduct our operations, to complete the recovery and recommencement of our Thailand operations or, subject to obtaining the required regulatory approvals, to consummate our planned acquisition of Hitachi GST." By the looks of that statement, the CEO is doing his best to state that this $525M award will not affect WDC’s momentum or movement, but if you look at their share price it has taken quite the beating in the past year and is down 23% in the last year compared to Seagate who is actually up 8%. Then again, it was WDC that blew past Seagate’s market share over the past couple of quarters.
If anything, right now is a very trying time for Western Digital and how they handle the Thai Floods and this $525M award will determine the company’s future share price as well as possibly the future of the company. We’re hopeful that Western Digital will get out of this without being hurt too poorly as we need competition in the hard drive market right now considering how high prices have gone. Not to mention the fact that there are essentially two hard drive manufacturers left in the world once Western Digital finishes their acquisition of Hitachi GST and Seagate their acquisition of Samsung’s hard drive business.
There is a very slim chance that the $525M award could be overturned in court, but based upon looking at Minnesota’s laws there isn’t going to be much room for a decision to be overturned unless certain evidence was not presented in a truthful manner.