Western Digital 2001 Annual Report Download - page 33

SFAS 142 requires that goodwill and intangible assets that have indeÑnite useful lives not be amortized
but rather be tested at least annually for impairment. The Company is required to adopt SFAS 142 on
June 29, 2002. However, goodwill and intangible assets acquired after June 30, 2001 are subject to the
amortization provisions of SFAS 142. The Company does not expect the adoption of SFAS 142 to have a
material impact on the Company's Ñnancial position or results of operations.
Risk factors related to the hard drive industry in which we operate
Our operating results depend on our being among the Ñrst-to-market and Ñrst-to-volume with our new
products.
To achieve consistent success with computer manufacturer customers we must be an early provider of
next generation hard drives featuring leading technology and high quality. If we fail to:
‚ consistently maintain or improve our time-to-market performance with our new products
‚ produce these products in suÇcient volume within our rapid product cycle
‚ qualify these products with key customers on a timely basis by meeting our customers' performance
and quality speciÑcations, or
‚ achieve acceptable manufacturing yields and costs with these products
then our market share would be adversely aÅected, which would harm our operating results.
Short product life cycles make it diÇcult to recover the cost of development.
Over the past few years hard drive areal density (the gigabytes of storage per disk) has increased at a
much more rapid pace than previously experienced. The technical challenges of maintaining this pace are
becoming more formidable, and the risk of not achieving the targets for each new generation of drives
increases, which could adversely impact product manufacturing yields and schedules, among other impacts.
Higher areal densities mean that fewer heads and disks are required to achieve a given drive capacity. This has
signiÑcantly shortened product life cycles, since each generation of drives is more cost eÅective than the
previous one. Shorter product cycles make it more diÇcult to recover the cost of product development.
Short product life cycles force us to continually qualify new products with our customers.
Due to short product life cycles, we must regularly engage in new product qualiÑcation with our
customers. To be considered for qualiÑcation we must be among the leaders in time-to-market with our new
products. Once a product is accepted for qualiÑcation testing, any failure or delay in the qualiÑcation process
can result in our losing sales to that customer until the next generation of products is introduced. The eÅect of
missing a product qualiÑcation opportunity is magniÑed by the limited number of high volume computer
manufacturers, most of which continue to consolidate their share of the PC market. These risks are magniÑed
because we expect cost improvements and competitive pressures to result in declining sales and gross margins
on our current generation products.
Unexpected technology advances in the hard drive industry could harm our competitive position.
If one of our competitors were able to implement a signiÑcant advance in head or disk drive technology
that enables a step-change increase in areal density allowing greater storage of data on a disk, it would harm
our operating results.
Advances in magnetic, optical, semiconductor or other data storage technologies could result in
competitive products that have better performance or lower cost per unit of capacity than our products. If
these products prove to be superior in performance or cost per unit of capacity, we could be at a competitive
disadvantage to the companies oÅering those products.
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