Memorex 2012 Annual Report Download - page 10

own these brands compete in the removable data storage media market, they generally do not report financial results for
these business lines on a stand-alone basis. Therefore, it is difficult for us to estimate our relative market share. However, we
use a variety of industry sources to estimate market size and share and we estimate we held a leading market share in 2012
in optical and magnetic products with more than one-third of those markets.
Our primary competitors for our Nexsan products include mid-range storage systems and products from Dell, EMC,
NetApp, Quantum and Dot Hill as well as a number of smaller, privately-held storage system companies.
The demand for data storage capacity is expected to grow. The magnetic tape industry has consistently addressed the
growth in demand for storage capacity with new non-proprietary storage formats with higher capacity cartridges resulting in a
lower cost per gigabyte which results in a decline in actual number of units of media shipped. In addition, these non-
proprietary formats experience greater price competition than proprietary formats. The market for non-proprietary format tape
continues to gain share against proprietary formats and is typically more competitive with lower gross margins than
proprietary formats. In addition, lower cost disk and storage optimization strategies such as virtual tape and de-duplication
remain a factor in certain sectors of the market. As a result, we expect our tape revenue to continue to be under pressure as
these factors contribute over time to a shift in the mix of total tape revenue toward lower margin open formats.
The optical market is in secular decline as digital streaming, hard disk and flash media replace optical media in some
applications such as music and video recording. While our different brands have varying strengths in different regions of the
world, in aggregate we have the leading overall share for recording optical media globally.
The secure flash media market is growing as more companies and individuals become victims of cyber-attacks and as
data becomes more mobile. This is generating a marketplace need for flash products with a security overlay. The traditional
flash media market is competitive with highly variable price swings driven by NAND chip manufacturing volume and capacity
as well as market demand in the much larger embedded flash market. Focused and efficient sourcing and distribution, as well
as diligent management of portfolio size, inventories, channel placement and promotional activity are critical elements for
success in this market.
Audio and video information products are sold based on a variety of factors, including brand and reputation, product
features and designs, distribution coverage, innovation and price. Our competitors in the audio and video information products
market consist of numerous manufacturers and brands. The global audio and video information products market is a very
large and highly diverse market in terms of competitors, channels and products. Our current product offerings focus on a
subset of this market.
Product Sourcing
We contract for the manufacturing of all products we sell and distribute from a variety of third-party providers that
manufacture predominately outside the United States. We seek to differentiate our products through unique designs, product
positioning, packaging, merchandising and branding.
On July 31, 2007, we acquired substantially all of the assets relating to the marketing, distribution, sales, customer
service and support of removable recording media products, accessory products and ancillary products being sold under the
TDK Life on Record brand name (TDK Recording Media), from TDK, including the assets or capital stock of TDK’s operating
subsidiaries engaged in the TDK Recording Media business. In conjunction with our acquisition of the TDK Recording Media
business we also entered into a supply agreement, dated July 31, 2007, with TDK (Supply Agreement), which allows us to
purchase a limited number of Linear Tape-Open, or LTO, Tape media and Blu-ray removable recording media products and
accessory products for resale under the TDK Life on Record brand name. TDK agreed to supply such products on competitive
terms, and TDK agreed not to sell any such products to third parties for resale under the TDK Life on Record brand name
during the term of the trademark license agreements. The trademark license agreements will continue unless terminated by
TDK no earlier than 2032 (2017 in the case of headphones and speakers) or earlier in the event of a material breach of the
trademark license agreement, specific change of control events or default by Imation. The Supply Agreement will continue for
so long as TDK manufactures any of the products. TDK owned approximately 18 percent of outstanding Imation Corp.
common stock on December 31, 2012.
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