Memorex 2011 Annual Report Download - page 9

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. 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 to continue to be under pressure as
these factors contribute over time to a shift in the mix of total tape revenue toward lower margin open formats.
The secure flash media market is growing as more companies and individuals become victims of cyber-attacks and as
data becomes more mobile. The traditional 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.
Audio and video information 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 audio and video information products
market consist of numerous manufacturers and brands. The global audio and video information products 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.
Product Sourcing
We contract for the manufacturing of all 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 July 31, 2007, we acquired substantially all of the assets relating to the marketing, distribution, sales, customer
service and support of removable recording media products, accessory products and ancillary products being sold under the
TDK Life on Record brand name (TDK Recording Media), from TDK, including the assets or capital stock of TDK’s operating
subsidiaries engaged in the TDK Recording Media business. In conjunction with our acquisition of the TDK Recording Media
business we also entered into a supply agreement, dated July 31, 2007, with TDK (Supply Agreement), which allows us to
purchase a limited number of LTO Tape media and Blu-ray removable recording media products and accessory products for
resale under the TDK Life on Record brand name. TDK agreed to supply such products on competitive terms, and TDK
agreed not to sell any such products to third parties for resale under the TDK Life on Record brand name during the term of
the trademark license agreements. The trademark license agreements will continue unless terminated by TDK no earlier than
2032 (2017 in the case of headphones and speakers) or earlier in the event of a material breach of the trademark license
agreement, specific change of control events or default by Imation. The Supply Agreement will continue until the later of 2012
or for so long as TDK manufactures any of the products. TDK owned approximately 20 percent of outstanding Imation Corp.
common stock on December 31, 2011.
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. We signed a strategic agreement with TDK to jointly develop and manufacture
magnetic tape technologies. Under the agreement, we collaborate on the research and development of future tape formats in
both companies’ research centers in the U.S. and Japan, and consolidated tape coating operations to the TDK Group
Yamanashi manufacturing facility.
We also make significant purchases of finished and semi-finished products, including optical media and USB flash
drives, certain finished tape and tape cartridges and consumer electronic products, primarily from Asian suppliers. For our
optical media, we procure our supply primarily from three companies. If supply were disrupted from any of our primary
suppliers, our business could be negatively impacted. The loss of these certain suppliers could have a material adverse
impact on the business. We view the sourcing and distribution of finished goods as a critical success factor for these products.
Therefore, we seek to establish and maintain strategic sourcing relationships with several key suppliers.
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