Western Digital 2007 Annual Report Download - page 10

Download and view the complete annual report

Please find page 10 of the 2007 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 92

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92

PART I
Item 1. Business
General
We design, develop, manufacture and sell hard drives. A hard drive is a device that uses one or more rotating
magnetic disks to store and allow fast access to data. Hard drives are key components of computers, including desktop and
notebook computers (“PCs”), data storage subsystems and many consumer electronic (“CE”) devices.
We sell our products worldwide to original equipment manufacturers (“OEMs”) and original design manufactures
(“ODMs”) for use in computer systems, subsystems or CE devices, and to distributors, resellers and retailers. Our hard
drives are used in desktop computers, notebook computers, and enterprise applications such as servers, workstations,
network attached storage, storage area networks and video surveillance equipment. Additionally, our hard drives are used
in CE applications such as digital video recorders (“DVRs”), and satellite and cable set-top boxes (“STBs”). We also sell
our hard drives as stand-alone storage products and integrate them into our own WD-branded external storage appliances
for purposes such as personal data backup and portable or expanded storage of digital music, photography, video, and
other data.
Hard drives provide non-volatile data storage, which means that the data remains present when power is no longer
applied to the device. Our hard drives currently include 3.5-inch and 2.5-inch form factor drives, having capacities
ranging from 40 gigabytes (“GB”) to 1 terabyte (“TB”), nominal rotation speeds of 5,400, 7,200 and 10,000 revolutions
per minute (“RPM”), and offer interfaces including both Enhanced Integrated Drive Electronics (“EIDE”) and Serial
Advanced Technology Attachment (“SATA”). We also embed our hard drives into WD-branded external storage
appliances that utilize interfaces such as USB 2.0, external SATA, FireWire
TM
and Ethernet network connections. In
addition, we recently announced a family of hard drives specifically designed to consume substantially less power than
previous designs.
We manufacture hard drives and head stack assemblies (“HSAs”) in Malaysia and Thailand. We also design and
manufacture a substantial portion of our required magnetic heads in California, and head gimbal assemblies (“HGAs”) in
Thailand. Following our planned acquisition of Komag, Incorporated (“Komag”), a leading media manufacturer and one
of our current suppliers, we will also design in California and manufacture in Malaysia most of our required media and
substrates. For geographical financial data, see Part II, Item 8, Note 6 in the Notes to Consolidated Financial Statements,
included in this Annual Report on Form 10-K.
On June 28, 2007, we entered into a definitive agreement to acquire all the outstanding shares of Komag for a value
of approximately $1.0 billion. The planned acquisition of Komag is intended to strengthen our production efficiencies
and enhance our hard drive manufacturing process by integrating media. The planned acquisition is structured as a cash
tender offer at $32.25 per share for all the outstanding shares of Komag common stock, followed by a merger of our
indirect wholly-owned subsidiary into Komag in which the remaining shareholders of Komag will receive $32.25 in cash
per share. The planned acquisition is expected to close in the third calendar quarter of 2007. We intend to fund the
planned acquisition, including the expected repurchase of Komag’s convertible notes due 2014 and related fees and
expenses, through a combination of cash and proceeds from a senior unsecured term bridge loan facility of up to
$1.3 billion.
Business Strategy
Our business strategy is to provide a broad selection of reliable, high quality hard drives at a low total cost of
ownership and with high efficiency. We believe this strategy helps accomplish the following:
• distinguishes us in the dynamic and competitive hard drive industry;
• provides great value to our customers; and
• allows us to better achieve consistent financial performance, including strong returns on invested capital.
We have designed our business strategy to accommodate significant unit and revenue growth with relatively small
increases in operating expenses and to consistently achieve high asset utilization.
4