Western Digital 2006 Annual Report Download - page 25

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Our operating results may be adversely affected if we fail to optimize the overall quality, time-to-market and time-to-volume
of new and established products.
To achieve consistent success with our customers who manufacture computers, systems and CE products, we must
balance several key attributes such as time-to-market, time-to-volume, quality, cost, service, price and a broad product
portfolio. If we fail to:
• maintain overall quality of products on new and established programs;
• produce sufficient quantities of products at the capacities our customers demand while managing the integration
of new and established technologies;
• develop and qualify new products that have changes in overall specifications or features that our customers may
require for their business needs;
• obtain commitments from our customers to qualify new products, redesigns of current products, or new
components in our existing products;
• qualify these products with key customers on a timely basis by meeting all of our customers’ needs for
performance, quality and features;
• maintain an adequate supply of components required to manufacture our products;
• maintain the manufacturing capability to quickly change our product mix between different capacities, form
factors and spin speeds in response to changes in customers’ product demands; or
• consistently meet stated quality requirements on delivered products, our operating results could be adversely
affected.
If we are unable to timely and cost-effectively develop heads with leading technology and overall quality, our ability to sell
our products may be significantly diminished, which could materially and adversely affect our business and financial results.
Under our business plan, we are developing and manufacturing a substantial portion of the heads used in some of the
product families of hard drives we manufacture. Consequently, we are more dependent upon our own development and
execution efforts and less able to take advantage of head technologies developed by other head manufacturers. Technology
transition for head designs is critical to increasing our volume production of heads. There can be no assurance, however,
that we will be successful in timely and cost-effectively developing and manufacturing heads for products using future
technologies. We also may not effectively transition our head design and head technology to achieve acceptable
manufacturing yields using the technologies necessary to satisfy our customers’ product needs, or we may encounter
quality problems with the heads we manufacture. In addition, we may not have access to external sources of supply
without incurring substantial costs. For example, we recently began using perpendicular recording heads in certain of our
products. We face various challenges in ramping the manufacturing volume of these products and if we do not adequately
address these challenges, or if we encounter quality problems with the heads we manufacture for these products, our
continued shipment of these products may be delayed, impairing our ability to realize revenue from these products.
If we fail to qualify our products with our customers, they may not purchase any units of a particular product line, which
would have a significant adverse impact on our sales.
We regularly engage in new product qualification with our customers. To be considered for qualification, we must
be among the leaders in time-to-market with our new products. Once a product is accepted for qualification testing,
failures or delays in the qualification process can result in our losing sales to that customer until the next generation of
products is introduced. The effect of missing a product qualification opportunity is magnified by the limited number of
high volume OEMs, which continue to consolidate their share of the desktop, mobile and CE markets. If product life
cycles continue to be extended due to a decrease in the rate of areal density growth, we may have a significantly longer
period to wait before we have an opportunity to qualify a new product with a customer, which could harm our
competitive position. These risks are increased because we expect cost improvements and competitive pressures to result
in declining gross margins on our current generation products.
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