Western Digital 2006 Annual Report Download - page 40

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and portable external storage markets. The majority of hard drives used in portable media players that play both digital
audio and video content are 1.8-inch form factors.
The branded products market for hard drives features storage products that we sell directly to end customers
through retail store fronts and online stores. Our branded products include external hard drives, which are internal drives
embedded into WD branded PC peripheral-style enclosures, which have FireWire
TM
, USB 2.0 and Ethernet network
connections; and internal hard drives that are packaged as an installation kit with the WD brand for retail store sales. We
believe the worldwide demand for external hard drives is growing, spurred by consumers’ and businesses’ expanding use
of digital content in the form of photographs, video and music — all of which consume large amounts of storage.
Results of Operations
Fiscal 2006 Overview
In 2006, our net revenue increased by 19.3% to $4.3 billion on unit shipments of 73.3 million as compared to
$3.6 billion and 61.4 million, respectively, in 2005. In 2006, 29% of our revenue was derived from non-desktop sources
including CE products, enterprise applications, notebook computers and retail sales as compared to 21% in 2005. Gross
margin increased to 19.1% from 16.2% in 2005. Operating income increased by $171 million to $366 million.
Operating income increased to 8.4% as a percentage of net revenue in 2006 compared with 5.3% in 2005. We generated
$402 million in cash flow from operations in 2006 compared with $461 million in 2005, finishing the year with
$699 million in cash and short-term investments, an increase of $100 million from the prior year. We utilized
$54 million to repurchase 3.5 million shares of our common stock.
Summary Comparison of 2006, 2005 and 2004
The following table sets forth, for the periods indicated, summary information from our consolidated statements of
income (in millions except percentages):
Years Ended
June 30, 2006 July 1, 2005 July 2, 2004
(as adjusted) (as adjusted)
Revenue, net ............................... $4,341 100.0% $3,639 100.0% $3,047 100.0%
Gross margin............................... 829 19.1 590 16.2 462 15.1
Operating expenses .......................... 463 10.7 395 10.9 308 10.1
Operating income ........................... 366 8.4 195 5.3 154 5.0
Non-operating income ........................ 16 0.4 5 0.2 — 0.0
Income before income taxes..................... 382 8.8 200 5.5 154 5.0
Income tax (benefit) expense .................... (13) (0.3) 4 0.1 4 0.1
Net income ................................ 395 9.1 196 5.4 150 4.9
34