Western Digital 2008 Annual Report Download - page 23

manufacturing capacity, then we may not be able to satisfy customer product needs, which could result in a loss of market
share if our competitors are able to meet customer demands.
We also use forecasts in making decisions regarding investment of our resources. For example, as the hard drive
industry transitions from the Parallel Advanced Technology Attachment (“PATA”) interface to the SATA interface, we
may invest more resources in the development of products using the SATA interface. If our forecasts regarding the
replacement of the PATA interface with the SATA interface are inaccurate, we may not have products available to meet
our customers’ needs.
In addition, although we receive forecasts from our customers, they are not generally obligated to purchase the
forecasted amounts. In particular, sales volumes in the distribution and retail channels are volatile and harder to predict
than sales to our OEM or ODM customers. We consider these forecasts in determining our component needs and our
inventory requirements. If we fail to accurately forecast our customers’ product demands, we may have inadequate or
excess inventory of our products or components, which could adversely affect our operating results.
Increases in areal density may outpace customers’ demand for storage capacity, which may lower the prices our customers are
willing to pay for new products.
Historically, the industry has experienced periods of variable areal density growth rates. When the rate of areal
density growth increases, the rate of increase may exceed the increase in our customers’ demand for aggregate storage
capacity. Furthermore, our customers’ demand for storage capacity may not continue to grow at current industry
estimates as a result of developments in the regulation and enforcement of digital rights management or otherwise. These
factors could lead to our customers’ storage capacity needs being satisfied with lower capacity hard drives at lower prices,
thereby decreasing our revenue. As a result, even with increasing aggregate demand for storage capacity, our ASPs could
decline, which could adversely affect our operating results.
Expansion into new hard drive markets may cause our capital expenditures to increase and if we do not successfully expand
into new markets, our business may suffer.
To remain a significant supplier of hard drives, we will need to offer a broad range of hard drive products to our
customers. We currently offer a variety of 3.5-inch hard drives for the desktop, enterprise, CE and external storage
markets, and we also offer 2.5-inch form factor hard drives for the mobile, CE and external storage markets. However,
demand for hard drives may shift to products in form factors or with interfaces that our competitors offer but which we do
not. Expansion into other hard drive markets and resulting increases in manufacturing capacity requirements may require
us to make substantial additional investments due in part because our operations are largely vertically integrated. If we
fail to successfully expand into new hard drive markets with products that we do not currently offer, we may lose business
to our competitors who offer these products.
If we fail to successfully manage our new product development or new market expansion, or if we fail to anticipate the issues
associated with such development or expansion, our business may suffer.
While we continue to develop new products and look to expand into other hard drive markets, the success of our new
product introductions is dependent on a number of factors, including our ability to anticipate and manage a variety of
issues associated with these new products and new markets, such as:
• difficulties faced in manufacturing ramp;
• market acceptance;
• effective management of inventory levels in line with anticipated product demand; and
• quality problems or other defects in the early stages of new product introduction that were not anticipated in the
design of those products.
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