Western Digital 2012 Annual Report Download - page 25

our end users. However, changes in seasonal and cyclical patterns have made it, and could continue to make it, more
difficult for us to forecast demand, especially as a result of the Thailand flooding and the current macroeconomic envi-
ronment. Changes in the product or channel mix of our business can also impact seasonal and cyclical patterns, adding
complexity in forecasting demand. Seasonality and cyclicality also may lead to higher volatility in our stock price. It is
difficult for us to evaluate the degree to which seasonality and cyclicality may affect our stock price or business in
future periods because of the rate and unpredictability of product transitions and new product introductions and
macroeconomic conditions.
Our customers’ demand for storage may not continue to grow at current industry estimates, which may lower the prices our
customers are willing to pay for our products or put us at a disadvantage to competing technologies.
Our customers’ demand for storage may not continue to grow at current industry estimates as a result of:
‰Mobile Devices. There has been a recent rapid growth in CE devices that do not contain a hard drive such as
tablet computers and smart phones. While tablet computers and smart phones provide many of the same capa-
bilities as PCs, the extent to which they will displace or materially affect the demand for PCs is uncertain. If
device-makers are successful in achieving customer acceptance of these devices as a replacement for traditional
computing applications that contain hard drives, or if we are not successful in adapting our product offerings
to include alternative storage solutions that address these devices, demand for our products may decrease.
‰Cloud Computing. Consumers traditionally have stored their data on their PC, often supplemented with
personal external storage devices. Most businesses also include similar local storage as a primary or secondary
storage location. This storage is typically provided by hard disk drives. Recently, cloud computing has
emerged whereby applications and data are hosted, accessed and processed through a third-party provider over
a broadband Internet connection, potentially reducing or eliminating the need for, among other things, sig-
nificant storage inside the accessing computer. This trend could cause the market for disk drives in computers
to decline over time, which could harm our business to the extent this decline is not offset by the sale of our
products to customers who provide cloud computing services.
Demand for our products also could be negatively impacted by developments in the regulation and enforcement
of digital rights management, the emergence of processes such as data deduplication and storage virtualization, eco-
nomic conditions, and the rate of increase in areal density exceeding the increase in our customers’ demand for storage.
These factors could lead to our customers’ storage needs being satisfied at lower prices with lower capacity hard drives
or solid-state storage products that we do not offer, thereby decreasing our revenue or putting us at a disadvantage to
competing storage technologies. As a result, even with increasing aggregate demand for storage, if we fail to anticipate
or timely respond to these developments in the demand for storage, our ASPs could decline, which could adversely
affect our operating results.
Selling to the retail market is an important part of our business, and if we fail to maintain and grow our market share or gain
market acceptance of our branded products, our operating results could suffer.
Selling branded products is an important part of our business, and as our branded products revenue increases as a
portion of our overall revenue, our success in the retail market becomes increasingly important to our operating
results. Our success in the retail market depends in large part on our ability to maintain our brand image and corpo-
rate reputation and to expand into and gain market acceptance of our products in multiple channels, including the
e-tail channel. Adverse publicity, whether or not justified, or allegations of product or service quality issues, even if
false or unfounded, could tarnish our reputation and cause our customers to choose products offered by our com-
petitors. In addition, the proliferation of new methods of mass communication facilitated by the Internet makes it
easier for false or unfounded allegations to adversely affect our brand image and reputation. If customers no longer
maintain a preference for WD®- or HGST™-brand products, our operating results may be adversely affected.
Sales in the distribution channel are important to our business, and if we fail to respond to demand changes in distribution
markets or if distribution markets for hard drives weaken, our operating results could suffer.
Our distribution customers typically sell to small computer manufacturers, dealers, systems integrators and other
resellers. We face significant competition in this channel as a result of limited product qualification programs and a
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