Western Digital 2007 Annual Report Download - page 41

The following table sets forth, for the periods indicated, summary information regarding volume shipments,
average selling prices (“ASPs”) and revenues by geography, channel and product (in millions, except percentages and
ASPs):
June 29,
2007
June 30,
2006
July 1,
2005
Years Ended
Net revenue ..................................... $5,468 $4,341 $3,639
Unit shipments ................................... 97 73 61
ASPs (per unit) ................................... $ 57 $ 59 $ 59
Revenues by Geography(%)
Americas...................................... 37% 36% 38%
Europe ....................................... 29 28 29
Asia ......................................... 34 36 33
Revenues by Channel(%)
OEM ........................................ 48% 54% 58%
Distributors ................................... 36 39 36
Branded products................................ 16 7 6
Revenues by Product(%)
Desktop computers .............................. 57% 71% 79%
Non-desktop sources ............................. 43 29 21
Fiscal Year 2007 Compared to Fiscal Year 2006
Net Revenue. Net revenue was $5.5 billion for 2007, an increase of 26% from 2006. Total unit shipments increased
to 97 million as compared to 73 million for the prior year. This unit increase resulted from an increase in our desktop
market share, stronger overall demand for hard drives in the desktop market and our increasing focus on the non-desktop
market, including mobile, CE, enterprise and branded products. For example, we shipped 12 million drives to the mobile
market in 2007 as compared to 5 million units in 2006. Additionally, we shipped 10 million units to the DVR market in
2007 as compared to 7 million units in 2006. ASPs declined to $57 due to normal technology price declines and a more
competitive pricing environment in the notebook, desktop, and consumer electronics markets. Changes in revenue by
geography generally reflect overall market demand fluctuations for hard drives. Changes in revenue by channel are a
result of increases in sales of branded products due to the growing worldwide acceptance of our WD My Book
TM
and WD
Passport»external digital storage appliances.
Gross Margin. Gross margin for 2007 was $900 million, an increase of $71 million, or 9% over the prior year.
Gross margin percentage decreased to 16.5% in 2007 from 19.1% in 2006. The factors contributing to this decrease
include normal technology price declines and a more competitive pricing environment in the notebook, desktop, and
consumer electronics markets. In addition, gross margin in 2006 benefited from a more favorable supply/demand
balance.
Operating Expenses. Total operating expenses, consisting of research and development (“R&D”) and selling, general
and administrative (“SG&A”) expenses decreased to 8.9% of net revenue in 2007 compared to 10.7% in 2006. R&D
expense was $306 million in 2007, an increase of $9 million, or 3% over the prior year. The increase in R&D expense was
primarily related to the development of new product platforms in support of our entry into new markets and expenditures
for advanced head technologies, partially offset by a decrease of $2 million in variable incentive compensation programs.
SG&A expense was $179 million in 2007, an increase of $13 million, or 8% as compared to 2006. The increase in SG&A
expense was primarily due to an increase of $19 million in stock based compensation expense and other long-term
employee incentive programs, offset by a $5 million decrease in software write-offs that occurred in 2006.
Interest and Other Income. Net interest and other income was $28 million and $16 million in 2007 and 2006,
respectively. This increase in net interest income was primarily due to higher average invested cash and short-term
investment balances.
35