Western Digital 2008 Annual Report Download - page 20

• spindle motors;
• custom and standard electronics such as system on chips, memory, motor controllers, pre-amps and printed
circuit boards;
• base and top covers; and
• magnets and related voice coil motors.
We also use several other components in our hard drives such as seals, filters, plastic molded parts, capacitors,
resistors, connectors and cables.
We design and manufacture a substantial portion of the heads, media and substrates required for the hard drives we
manufacture. We purchase a portion of these components from third party suppliers.
We acquire all of the remaining components for our products from third party suppliers. We generally retain
multiple suppliers for each of our component requirements but in some instances use sole sources for business reasons.
We sole-source some components, such as custom integrated circuit devices for certain products from suppliers like
Marvell Technology, STMicroelectronics and Texas Instruments. Because of their custom nature, these products require
significant design-in periods and long lead times. There has been a trend in integrated circuit design toward increased
integration of various separate circuits and we expect this trend to continue in custom integrated circuits for hard drives.
For an additional discussion of risks related to our component supplies, see Item 1A of this Annual Report on
Form 10-K.
Backlog
Historically, a substantial portion of our orders have been for shipments of hard drives within 30 to 60 days of the
placement of the order. We generally negotiate pricing, order lead times, product support requirements and other terms
and conditions before receiving a customer’s first purchase order for a product. Customers’ purchase orders typically may
be canceled with relatively short notice to us, with little or no cost to the customer, or modified by customers to provide
for delivery at a later date. In addition, we make many of our sales to OEMs under just-in-time delivery contracts that do
not generally require firm order commitments by the customer until the time of sale. Instead, we receive a periodic
forecast of requirements from the customer and invoice the customer upon shipment of the product from the just-in-time
warehouse. Therefore, backlog information as of the end of a particular period is not necessarily indicative of future levels
of our revenue and profit and may not be comparable to earlier periods.
Patents, Licenses and Proprietary Information
We own numerous patents and have many patent applications in process. We believe that, although our patents and
patent applications have considerable value, the successful manufacturing and marketing of our products depends
primarily upon the technical and managerial competence of our staff. Accordingly, the patents held and applied for do not
ensure our future success.
In addition to patent protection of certain intellectual property rights, we consider elements of our product designs
and processes to be proprietary and confidential. We believe that our non-patented intellectual property, particularly
some of our process technology, is an important factor in our success. We rely upon non-disclosure agreements and
contractual provisions and a system of internal safeguards to protect our proprietary information. Despite these
safeguards, there is a risk that competitors may obtain and use such information. The laws of foreign jurisdictions
in which we conduct business may provide less protection for confidential information than the United States.
We rely on certain technology that we license from other parties to manufacture and sell WD products. We believe
that we have adequate cross-licenses and other agreements in place in addition to our own intellectual property portfolio
to compete successfully in the hard drive industry. For additional discussion of risks related to our ownership and use of
intellectual property, see Item 1A of this Annual Report on Form 10-K.
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