Western Digital 2008 Annual Report Download - page 34

Increases in our customers’ credit risk could result in credit losses and an increase in our operating costs.
Some of our OEM customers have adopted a subcontractor model that requires us to contract directly with companies,
such as ODMs, that provide manufacturing services to our OEM customers. Because these subcontractors are generally not as
well capitalized as our direct OEM customers, this subcontractor model exposes us to increased credit risks. Our agreements
withourOEMcustomersmaynotpermitustoincreaseourproductprices to alleviate this increased credit risk. Additionally,
as we attempt to expand our OEM and distribution channel sales into emerging economies such as Brazil, Russia, India and
China, the customers in these regions may have relatively short operating histories, making it more difficult for us to accurately
assess the associated credit risks. Any credit losses we may suffer as a result of these increased risks, or as a result of credit losses
from any significant customer, would increase our operating costs, which may negatively impact our operating results.
Negative conditions in the credit markets could result in a decrease in sales and lower revenue in the distribution channel.
Many of our customers in the distribution channel rely on credit financing in order to purchase our products. If the
recent negative conditions in the global credit markets prevent our customers’ access to credit, product orders in the
distribution channel may decrease which could result in lower revenue.
Inaccurate projections of demand for our product can cause large fluctuations in our quarterly results.
We often ship a high percentage of our total quarterly sales in the third month of the quarter, which makes it
difficult for us to forecast our financial results before the end of the quarter. In addition, our quarterly projections and
results may be subject to significant fluctuations as a result of a number of other factors including:
• the timing of orders from and shipment of products to major customers;
• our product mix;
• changes in the prices of our products;
• manufacturing delays or interruptions;
• acceptance by customers of competing products in lieu of our products;
• variations in the cost of components for our products;
• limited availability of components that we obtain from a single or a limited number of suppliers;
• competition and consolidation in the data storage industry;
• seasonal and other fluctuations in demand for PCs often due to technological advances; and
• availability and rates of transportation.
Rapidly changing conditions in the hard drive industry make it difficult to predict actual results.
We have made and continue to make a number of estimates and assumptions relating to our consolidated financial
reporting. The highly technical nature of our products and the rapidly changing market conditions with which we deal
means that actual results may differ significantly from our estimates and assumptions. These changes have impacted our
financial results in the past and may continue to do so in the future. Key estimates and assumptions for us include:
• price protection adjustments and other sales promotions and allowances on products sold to retailers, resellers and
distributors;
• inventory adjustments for write-down of inventories to lower of cost or market value (net realizable value);
• reserves for doubtful accounts;
• accruals for product returns;
• accruals for warranty costs related to product defects;
• accruals for litigation and other contingencies; and
• liabilities for unrecognized tax benefits.
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