Western Digital 2001 Annual Report Download - page 37

we conclude that a claim of infringement is valid, we may be required to obtain a license or cross-license or
modify our existing technology or design a new non-infringing technology. Such licenses or design modiÑca-
tions can be extremely costly. We may also be liable for any past infringement. If there is an adverse ruling
against us in an infringement lawsuit, an injunction could be issued barring production or sale of any infringing
product. It could also result in a damage award equal to a reasonable royalty or lost proÑts or, if there is a
Ñnding of willful infringement, treble damages. Any of these results would likely increase our costs and harm
our operating results.
Our reliance on intellectual property and other proprietary information subjects us to the risk that these key
ingredients of our business could be copied by competitors.
Our success depends, in signiÑcant part, on the proprietary nature of our technology, including
non-patentable intellectual property such as our process technology. Despite safeguards, to the extent that a
competitor is able to reproduce or otherwise capitalize on our technology, it may be diÇcult, expensive or
impossible for us to obtain necessary legal protection. Also, the laws of some foreign countries may not protect
our intellectual property to the same extent as do the laws of the United States. In addition to patent
protection of intellectual property rights, we consider elements of our product designs and processes to be
proprietary and conÑdential. We rely upon employee, consultant and vendor non-disclosure agreements and a
system of internal safeguards to protect our proprietary information. However, any of our registered or
unregistered intellectual property rights may be challenged or exploited by others in the industry, which might
harm our operating results.
Inaccurate projections of demand for our product can cause large Öuctuations in our quarterly results.
If we do not forecast total quarterly demand accurately, it can have a material adverse eÅect on our
quarterly results. We typically book and ship a high percentage of our total quarterly sales in the third month
of the quarter, which makes it diÇcult for us to match our production plans to customer demands. In addition,
our quarterly projections and results may be subject to signiÑcant Öuctuations as a result of a number of other
factors including:
‚ the timing of orders from and shipment of products to major customers
‚ our product mix
‚ changes in the prices of our products
‚ manufacturing delays or interruptions
‚ acceptance by customers of competing products in lieu of our products
‚ variations in the cost of components for our products
‚ limited access to components that we obtain from a single or a limited number of suppliers, such as
Komag
‚ competition and consolidation in the data storage industry
‚ seasonal and other Öuctuations in demand for computers often due to technological advances.
Rapidly changing market conditions in the hard drive industry make it diÇcult to estimate actual results.
We have made and continue to make a number of estimates and assumptions relating to our consolidated
Ñnancial reporting. The rapidly changing market conditions with which we deal means that actual results may
diÅer signiÑcantly from our estimates and assumptions. Key estimates and assumptions for us include:
‚ accruals for warranty against product defects
‚ price protection adjustments on products sold to resellers and distributors
‚ inventory adjustments for write-down of inventories to fair value
‚ reserves for doubtful accounts
‚ accruals for product returns.
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