Western Digital 2008 Annual Report Download - page 17

For an additional discussion of risks related to technological innovations, see Item 1A of this Annual Report on
Form 10-K.
Sales and Distribution
We sell our products globally to OEMs, ODMs, distributors and retailers. OEMs purchase our hard drives, either
directly or through a contract manufacturer such as an ODM, and assemble them into the computer or CE systems they
build. Distributors typically sell our hard drives to non-direct customers such as small computer and CE manufacturers,
dealers, systems integrators, online retailers and other resellers. Retailers typically sell our hard drive products directly to
end-users through their storefront or online facilities.
Original Equipment Manufacturers
Sales to OEMs, which include sales through ODMs, accounted for 51%, 48% and 54% of our hard drive revenue in
2008, 2007 and 2006, respectively. During 2008, no single customer accounted for 10%, or more, of our revenue. During
2007 and 2006, sales to Dell, Inc. accounted for 10% and 12%, respectively, of our revenue. We believe that our success
depends on our ability to maintain and improve our strong relationships with the leading OEMs.
OEMs evaluate and select their hard drive suppliers based on a number of factors, including quality and reliability,
storage capacities, performance characteristics, price, service and support, ease of doing business, and the supplier’s long-
term financial stability. They typically seek to qualify two or more providers for each generation of hard drives, and once
an OEM has chosen its qualified hard drive vendors for a given product, it generally will purchase hard drives from those
vendors for the life of that product. To achieve success with OEM qualifications, a hard drive supplier must consistently
offer hard drives featuring leading technology, quality and reliability at acceptable capacity per disk. Suppliers must
quickly achieve volume production of each new generation of high quality and reliable hard drives, requiring access to
flexible, high-capacity, high-quality manufacturing capabilities.
Many of our OEM customers utilize just-in-time inventory management processes or supply chain business models
that combine “build-to-order,” in which they do not build until there is a firm order, and “contract manufacturing,” in
which the OEM contracts assembly work to a contract manufacturer, such as an ODM, who purchases components and
assembles the computer based on the OEM’s instructions. For certain OEMs, we maintain a base stock of finished goods
inventory in facilities located near or adjacent to the OEM’s operations.
For an additional discussion of risks related to our need to adapt to our customers’ business models and maintain
customer satisfaction, refer to Item 1A of this Annual Report on Form 10-K.
Distributors
We use a broad group of distributors to sell our products to non-direct customers such as small computer and CE
manufacturers, dealers, systems integrators, online retailers and other resellers. Distributors accounted for approximately
31%, 36% and 39% of our hard drive revenue for 2008, 2007 and 2006, respectively. Distributors generally enter into
non-exclusive agreements for specific territories with us for the purchase and redistribution of our products in specific
territories. We grant our distributors limited price protection rights.
Retailers
We sell our branded products directly to a select group of major retailers such as computer superstores, warehouse
clubs, online retailers, and computer electronics stores, and authorize sales through distributors to smaller retailers.
Retailers accounted for approximately 18%, 16% and 7% of our hard drive revenue for 2008, 2007 and 2006,
respectively. Our current retail customer base is primarily in the United States, Canada and Europe. The retail channel
complements our other sales channels while helping to build brand awareness for WD and our products. Retailers supply
end-users with products to upgrade their computers and externally store their data for backup or mobility purposes. We
grant our retailers price protection and limited rights to return product on an inventory rotation basis. We also sell our
branded products through our web site.
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