Western Digital 2008 Annual Report Download - page 33

equal to a reasonable royalty or lost profits or, if there is a finding of willful infringement, treble damages. Any of these
results would increase our costs and harm our operating results.
Our reliance on intellectual property and other proprietary information subjects us to the risk that these key ingredients of our
business could be copied by competitors.
Our success depends, in significant part, on the proprietary nature of our technology, including non-patentable
intellectual property such as our process technology. Despite safeguards, to the extent that a competitor is able to
reproduce or otherwise capitalize on our technology, it may be difficult, expensive or impossible for us to obtain necessary
legal protection. Also, the laws of some foreign countries may not protect our intellectual property to the same extent as
do the laws of the United States. In addition to patent protection of intellectual property rights, we consider elements of
our product designs and processes to be proprietary and confidential. We rely upon employee, consultant and vendor non-
disclosure agreements and contractual provisions and a system of internal safeguards to protect our proprietary
information. However, any of our registered or unregistered intellectual property rights may be challenged or exploited
by others in the industry, which might harm our operating results.
Environmental regulation costs could harm our operating results.
We may be subject to various state, federal and international laws and regulations governing the environment,
including those restricting the presence of certain substances in electronic products and making producers of those
products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and
regulations have been passed in several jurisdictions in which we operate. For example, the European Union has enacted
the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) directive,
which prohibits the use of certain substances in electronic equipment, and the Waste Electrical and Electronic Equipment
(“WEEE”) directive, which obligates parties that place electrical and electronic equipment onto the market in the EU to
put a clearly identifiable mark on the equipment, register with and report to EU member countries regarding
distribution of the equipment, and provide a mechanism to take-back and properly dispose of the equipment. Similar
legislation may be enacted in other locations where we manufacture or sell our products. We will need to ensure that we
comply with such laws and regulations as they are enacted, and that our component suppliers also timely comply with
such laws and regulations. If we fail to timely comply with the legislation, our customers may refuse to purchase our
products, which would have a materially adverse effect on our business, financial condition and operating results.
In connection with our compliance with such environmental laws and regulations, we could incur substantial costs
and be subject to disruptions to our operations and logistics. In addition, if we were found to be in violation of these laws,
we could be subject to governmental fines and liability to our customers. If we have to make significant capital
expenditures to comply with environmental laws, or if we are subject to significant expenses in connection with a
violation of these laws, our financial condition or operating results could suffer.
Fluctuations in currency exchange rates as a result of our international operations may negatively affect our operating results.
Because we manufacture our products abroad, our operating costs are subject to fluctuations in foreign currency
exchange rates. Further fluctuations in the exchange rate of the Thai Baht and of the Malaysian Ringgit may negatively
impact our operating results.
The Thai Baht is a free floating currency while the Malaysian Ringgit exchange rate policy is one of a managed float.
We have attempted to manage the impact of foreign currency exchange rate changes by, among other things, entering
into short-term, forward contracts. However, these contracts do not cover our full exposure and can be canceled by the
issuer if currency controls are put in place. Currently, we hedge the Thai Baht, Malaysian Ringgit, Euro and British
Pound Sterling with forward contracts.
If the U.S. dollar exhibits sustained weakness against most foreign currencies, the U.S. dollar equivalents of
unhedged manufacturing costs could increase because a significant portion of our production costs are foreign-currency
denominated. Conversely, there would not be an offsetting impact to revenues since revenues are substantially U.S. dollar
denominated.
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