Western Digital 2008 Annual Report Download - page 29

including the need to operate at high levels of utilization to drive competitive costs and the need for assured supply of
components that we do not manufacture ourselves.
In addition, we may incur additional risks, including:
• failure to continue to leverage the integration of our media technology with our head technology;
• insufficient third party sources to satisfy our needs if we are unable to manufacture a sufficient supply of heads or
media;
• third party head or media suppliers may not continue to do business with us or may not do business with us on the
same terms and conditions we have previously enjoyed;
• claims that our manufacturing of heads or media may infringe certain intellectual property rights of other
companies; and
• difficulties locating in a timely manner suitable manufacturing equipment for our head or media manufacturing
processes and replacement parts for such equipment.
If we do not adequately address the challenges related to our head or media manufacturing operations, our ongoing
operations could be disrupted, resulting in a decrease in our revenue or profit margins and negatively impacting our
operating results.
If we are unable to timely and cost-effectively develop heads and media with leading technology and overall quality, our
ability to sell our products may be significantly diminished, which could materially and adversely affect our business and
financial results.
Under our business plan, we are developing and manufacturing a substantial portion of the heads and media used in
some of the hard drive products we manufacture. Consequently, we are more dependent upon our own development and
execution efforts and less able to take advantage of head and media technologies developed by other manufacturers.
Technology transition for head and media designs is critical to increasing our volume production of heads and media.
There can be no assurance, however, that we will be successful in timely and cost-effectively developing and manu-
facturing heads or media for products using future technologies. We also may not effectively transition our head or media
design and technology to achieve acceptable manufacturing yields using the technologies necessary to satisfy our
customers’ product needs, or we may encounter quality problems with the heads or media we manufacture. In addition,
we may not have access to external sources of supply without incurring substantial costs which would negatively impact
our business and financial results.
Changes in product life cycles could adversely affect our financial results.
If product life cycles lengthen, we may need to develop new technologies or programs to reduce our costs on any
particular product to maintain competitive pricing for that product. If product life cycles shorten, it may result in an
increase in our overall expenses and a decrease in our gross margins, both of which could adversely affect our operating
results. In addition, shortening of product life cycles also make it more difficult to recover the cost of product
development before the product becomes obsolete. Our failure to recover the cost of product development in the future
could adversely affect our operating results.
If we fail to make the technical innovations necessary to continue to increase areal density, we may fail to remain competitive.
New products in the hard drive market typically require higher areal densities than previous product generations,
posing formidable technical and manufacturing challenges. Higher areal densities require existing head and media
technology to be improved or new technology developed to accommodate more data on a single disk. In addition, our
introduction of new products during a technology transition increases the likelihood of unexpected quality concerns. Our
failure to bring high quality new products to market on time and at acceptable costs may put us at a competitive
disadvantage to companies that achieve these results.
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