Memorex 2010 Annual Report Download - page 8

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Our products are sold through a combination of distributors, wholesalers, value-added resellers, OEMs and retail
outlets. Worldwide, approximately 52 percent of our 2010 revenue came from distributors, 45 percent came from the retail
channel and 3 percent came from OEMs. We maintain a company sales force to generate sales of our products around
the world.
Market and Competition
The global market for our products is highly competitive and characterized by continuing changes in technology,
frequent new product introductions and performance improvements, diverse distribution channels, aggressive marketing and
pricing practices and ongoing variable price erosion. Competition is based on a multitude of factors, including product
design, brand strength, distribution presence and capability, channel knowledge and expertise, geographic availability,
breadth of product line, product cost, media capacity, access speed and performance, durability, reliability, scalability and
compatibility.
Our primary competitors in recordable optical media include Sony, Maxell and Verbatim brands. Our primary
competitors in flash media include SanDisk, Lexar, PNY and Kingston brands. Our primary competitors in magnetic tape
media include Fuji, Sony and Maxell brands. Our primary competitors in external and removable hard drives are Western
Digital and Seagate. While the parent companies that own these brands compete in the removable data storage media
market, most generally do not report financial results for these business lines on a stand-alone basis. Therefore, it is
difficult for us to estimate our relative market share. However, we use a variety of industry sources to estimate market size
and share and we estimate we held a leading market share in optical and magnetic products with more than one-third of
those markets. We estimate that we held a market share in flash and removable and external hard disk products of less
than two percent.
While demand for data storage capacity is expected to grow, the removable media market size is expected to decline
in terms of revenue. The magnetic tape industry has consistently addressed the growth in demand for storage capacity
with new non-proprietary storage formats with higher capacity cartridges resulting in a lower cost per gigabyte and a
decline in actual number of units of media shipped. In addition, these non-proprietary formats experience greater price
competition than proprietary formats. The market for non-proprietary format tape continues to gain share against
proprietary formats and is typically more competitive with lower gross margins than proprietary formats. These factors
inhibit the overall revenue growth of the industry. In addition, lower cost disk and storage optimization strategies such as
virtual tape and de-duplication remain a factor in certain sectors of the market. As a result, we expect our tape revenue
and margins to continue to be under pressure as these factors contribute over time to a decline in the size of the total
tape media market and a shift in the mix of total tape revenue toward lower margin open formats.
The removable flash media market is competitive with highly variable price swings driven by NAND chip
manufacturing volume and capacity as well as market demand in the much larger embedded flash market. Focused and
efficient sourcing and distribution, as well as diligent management of inventories, channel placement and promotional
activity are critical elements for success in this market.
Consumer electronic products are sold based on a variety of factors, including brand and reputation, product features
and designs, distribution coverage, innovation and price. Our competitors in the consumer electronic products market
consist of numerous manufacturers and brands. Our portion of the United States consumer electronics market share is
currently less than one percent. The global consumer electronics market is a very large and highly diverse market in terms
of competitors, channels and products. Our current product offerings focus on a subset of this market.
Manufacturing
We currently manufacture certain magnetic tape media formats. We contract for the manufacturing of all other
products we sell and distribute from a variety of third-party providers that manufacture predominately outside the United
States. We seek to differentiate our products through unique designs, product positioning, packaging, merchandising and
branding.
On January 13, 2011, our Board of Directors approved a restructuring plan to discontinue tape coating operations at
our Weatherford, Oklahoma facility by April 2011 and subsequently close the facility. We signed a strategic agreement with
TDK, a related party, to jointly develop and manufacture magnetic tape technologies. Under the agreement, we will
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