Western Digital 2015 Annual Report Download - page 36

Violation of applicable laws, including labor or environmental laws, and certain other practices by our suppliers or customers
could harm our business.
We expect our suppliers and customers to operate in compliance with applicable laws and regulations, including
labor and environmental laws, and to otherwise meet our required standards of conduct. While our internal operating
guidelines promote ethical business practices, we do not control our suppliers or customers or their labor or environ-
mental practices. The violation of labor, environmental or other laws by any of our suppliers or customers, or
divergence of a supplier’s or customer’s business practices from those generally accepted as ethical, could harm our
business by:
‰interrupting or otherwise disrupting the shipment of our product components;
‰damaging our reputation;
‰forcing us to find alternate component sources;
‰reducing demand for our products (for example, through a consumer boycott); or
‰exposing us to potential liability for our suppliers’ or customers’ wrongdoings.
Any decisions to reduce or discontinue paying cash dividends to our shareholders or repurchase shares of our common stock pursuant
to our previously announced stock repurchase program could cause the market price for our common stock to decline.
We may reduce or discontinue repurchases of our common stock as we deem appropriate and as market con-
ditions allow. We may modify, suspend or cancel our cash dividend policy in any manner and at any time. Any reduc-
tion or discontinuance by us of the payment of quarterly cash dividends or repurchases of our common stock pursuant
to our stock repurchase program could cause the market price of our common stock to decline. Moreover, in the event
our payment of quarterly cash dividends or repurchases of shares of our common stock are reduced or discontinued,
our failure or inability to resume paying cash dividends or repurchasing shares of our common stock at historical levels
could cause the market price of our common stock to decline.
Fluctuations in currency exchange rates as a result of our international operations may negatively affect our operating results.
Because we manufacture and sell our products abroad, our revenue, margins, operating costs and cash flows are
impacted by fluctuations in foreign currency exchange rates. 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 por-
tion 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. Additionally, we negotiate and procure some of our
component requirements in U.S. dollars from non-U.S. based vendors. If the U.S. dollar weakens against other foreign
currencies, some of our component suppliers may increase the price they charge for their components in order to maintain
an equivalent profit margin. If this occurs, it would have a negative impact on our operating results.
Prices for our products are substantially U.S. dollar denominated, even when sold to customers that are located
outside the United States. Therefore, as a substantial portion of our sales are from countries outside the United States,
fluctuations in currency exchanges rates, most notably the strengthening of the U.S. dollar against other foreign cur-
rencies, contribute to variations in sales of products in impacted jurisdictions and could adversely impact demand and
revenue growth. In addition, currency variations can adversely affect margins on sales of our products in countries
outside the United States.
We attempt to manage the impact of foreign currency exchange rate changes by, among other things, entering
into short-term, foreign exchange contracts. However, these contracts do not cover our full exposure and can be can-
celed by the counterparty if currency controls are put in place.
Increases in our customers’ credit risk could result in credit losses and term extensions under existing contracts with customers with
credit losses could result in 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 and fulfillment services to our OEM customers. Because these
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