Memorex 2014 Annual Report Download - page 11

6
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 recordable optical media globally.
In standard flash media, Imation’s primary competitors include Kingston, SanDisk, Lexar and PNY. In standard
external and removable hard drives, our major competitors are Western Digital and Seagate. 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.
Audio and accessories products are sold based on a range of factors, including brand and reputation, product
features and designs, distribution coverage, innovation and price. Our competitors in the audio and accessories
products market consist of numerous manufacturers and brands. The global audio and accessories products market
is very large and highly diverse in terms of competitors, channels and products. Our current product offerings,
including the differentiated TREK line, target 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 predominantly outside the United States. We seek to differentiate our products through unique
designs, product positioning, packaging, merchandising and branding.
In 2011, we signed a strategic agreement with TDK to jointly develop and manufacture magnetic tape
technologies, and we discontinued tape coating operations at our Weatherford, Oklahoma facility. Under the
agreement, we collaborated on the research and development of future tape formats in both companies’ research
centers in the U.S. and Japan, and consolidated tape coating operations to the TDK Group Yamanashi
manufacturing facility. At the end of 2013, TDK announced its intent to cease manufacturing of magnetic tape, and
exited the tape manufacturing business in the first half of 2014. We transitioned to source our product to alternate
magnetic tape suppliers during 2014.
We also purchase finished and semi-finished products, including optical media and USB flash drives, and
consumer electronic products, primarily from Asian suppliers. For our optical media, we procure our supply primarily
from up to three companies. We view the sourcing and distribution of finished goods as a critical success factor for
these products. Therefore, we seek to establish and maintain strategic sourcing relationships with several key
suppliers. If supply were disrupted from any of our main suppliers, or if we lost any of these suppliers, it could have
a material adverse impact on our business.
Research, Development and Engineering
Development and timely introduction of new products is important to our success. Beginning in 2013, we
narrowed our research and development efforts to priority projects in our growth areas of data protection and
management, storage hardware, removable hard drive systems, disk-based storage systems and related software.
We maintain advanced research facilities and invest both in researching, developing and engineering potential new
products, as well as improving existing products. Our research and development expense was $18.8 million, $18.4
million and $20.4 million for 2014, 2013 and 2012, respectively. We invest in focused research, development,
engineering and capital equipment in order to remain competitive and successfully develop and source products
that meet market requirements.
Intellectual Property
We rely on a combination of patent, trademark and copyright laws, trade secret protection, and confidentiality
and license agreements to protect the intellectual property rights related to our products. We register our patents
and trademarks in the United States and in a number of other countries where we do business. United States
patents are currently granted for a term of 20 years from the date a patent application is filed. United States
trademark registrations are for a term of 10 years and are renewable every 10 years as long as the trademarks are
used in the regular course of trade. Pursuant to trademark license agreements between TDK and Imation and its
affiliates, TDK granted Imation and its affiliates a long-term exclusive license to use the TDK Life on Record brand
for current and future recordable magnetic, optical, flash media and accessory products globally. 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.