Western Digital 2012 Annual Report Download - page 30

products, and technology and production equipment that can be used to develop and manufacture our next-generation
products efficiently. The failure of these suppliers to effectively and efficiently develop and manufacture components
that can be integrated into our products or technology and production equipment that can be used to develop or
manufacture next generation products may cause us to experience inability or delay in our manufacturing and ship-
ment of hard drive products, our expansion into new technology and markets, or our ability to remain competitive
with alternative storage technologies, therefore adversely affecting 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 makes 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.
A fundamental change in recording technology could result in significant increases in our costs and could put us at a competitive
disadvantage.
Historically, when the industry experiences a fundamental change in technology, any manufacturer that fails to
successfully and timely adjust its designs and processes to accommodate the new technology fails to remain com-
petitive. There are some revolutionary technologies, such as current-perpendicular-to-plane giant magnetoresistance,
shingle magnetic recording, energy assisted magnetic recording, patterned magnetic media and advanced signal proc-
essing, that if implemented by a competitor on a commercially viable basis ahead of the industry, could put us at a
competitive disadvantage. As a result of these technology shifts, we could incur substantial costs in developing new
technologies, such as heads, magnetic media, and tools to remain competitive. If we fail to successfully implement
these new technologies, or if we are significantly slower than our competitors at implementing new technologies, we
may not be able to offer products with capacities that our customers desire.
The difficulty of introducing hard drives with higher levels of areal density and the challenges of reducing other costs may impact
our ability to achieve historical levels of cost reduction.
Storage capacity of the hard drive, as manufactured by us, is determined by the number of disks and each disk’s
areal density. Areal density is a measure of the amount of magnetic bits that can be stored on the recording surface of
the disk. Generally, the higher the areal density, the more information can be stored on a single platter. Higher areal
densities require existing head and magnetic media technology to be improved or new technologies developed to
accommodate more data on a single disk. Historically, we have been able to achieve a large percentage of cost reduc-
tion through increases in areal density. Increases in areal density mean that the average drive we sell has fewer heads
and disks for the same capacity and, therefore, may result in a lower component cost. However, increasing areal den-
sity has become more difficult in the storage industry. If we are not able to increase areal density at the same rate as
our competitors or at a rate that is expected by our customers, we may be required to include more components in our
drives to meet demand without corresponding incremental revenue, which could negatively impact our operating
margins and make achieving historical levels of cost reduction difficult or unlikely. Additionally, increases in areal
density may require us to make further capital expenditures on items such as new testing equipment needed as a result
of an increased number of gigabytes per platter. Our inability to achieve cost reductions could adversely affect our
operating results.
If we do not properly manage technology transitions and new product development, our competitiveness and operating results may
be negatively affected.
The storage markets in which we offer our products continuously undergo technology transitions which we must
anticipate and adapt our products to address in a timely manner. If we fail to implement these new technologies suc-
cessfully, or if we are slower than our competitors at implementing new technologies, we may not be able to com-
petitively offer products that our customers desire, which could harm our operating results.
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