Seagate 2003 Annual Report Download - page 11

Table of Contents
than we have. These competitors include other independent rigid disc drive manufacturers such as Maxtor and Western Digital, as well as large
captive manufacturers such as Fujitsu, Hitachi Global Storage Technologies, Samsung and Toshiba. Because they produce complete computer
systems, captive manufacturers can derive a greater portion of their operating margins from other components, which reduces their need to
realize a profit on the rigid disc drives included in their computer systems and allows them to sell rigid disc drives to third parties at very low
margins. Many captive manufacturers are also formidable competitors because they have more substantial resources and greater access to their
internal customers than we do. In addition, Hitachi Global Storage Technologies (together with affiliated entities) and Samsung Electronics
Incorporated also sell other products to our customers, including critical components like flash memory, application-
specific integrated circuits,
or ASICs, and flat panel displays, and may be willing to sell their disc drives at a lower margin to advance their overall business strategy. We
also face indirect competition from present and potential customers, who evaluate from time to time whether to manufacture their own rigid
disc drives and other information storage products or purchase them from outside sources other than us. These manufacturers also sell rigid
disc drives to third parties, which results in direct competition with us. We expect that continued consolidation both among independent
manufacturers and among captive manufacturers will increase the threat posed to our business by these competitors. During the last few years,
three additional competitors have entered the market; Cornice and GS Magicstor, offering 1-inch disc drives, and Excelstor as a contract
manufacturer of desktop disc drives.
Price Erosion . Our competitors have historically offered new or existing products at lower prices as part of a strategy to gain or retain
market share and customers, and we expect these practices to continue. Even during periods when demand for rigid disc drives is stable, our
industry is price competitive and vendors experience price erosion over the life of a product. Such price erosion has increased as product life
cycles have lengthened due to a slowing in the rate of increase in areal density. This slowing of the areal density curve may contribute to
increases in average price erosion to the extent that historical price erosion patterns continue, product life cycles are lengthened, our
competitors have more time to enter the market for a particular product, and we are unable to offset this with new products at higher average
prices. We expect that price erosion in our industry will continue for the foreseeable future. To remain competitive, we believe it will be
necessary to continue to reduce our prices. We have established production facilities in China, Malaysia, Singapore and Thailand to achieve
cost reductions.
Product Life Cycles and Changing Technology . Historically, competition and changing customer preference and demand in the rigid
disc drive industry have shortened product life cycles and caused acceleration in the development and introduction of new technology. Based
on the recent pace of new product introductions, however, we believe that the current rate of increase in areal density is slowing from the rate
of the last several years, and the resulting variability in product life cycles may make planning for product transitions more difficult. We
believe that our future success will depend upon our ability to develop, manufacture and market products of high quality and reliability which
meet changing user needs and which successfully anticipate or respond to changes in technology and standards on a cost-effective and timely
basis.
Research and Development
We are committed to developing new component technologies and products and evaluating alternative technologies. We have increased
our focus on research and development and realigned our rigid disc drive development process. This structured product process is designed to
bring new products to market through predictable and repeatable methodologies. Seagate Research, which is based in Pittsburgh, Pennsylvania,
is dedicated to extending the capacity of magnetic and optical recording and exploring alternative data storage technologies, including
perpendicular recording technology and heat assisted magnetic recording technology. Perpendicular recording technology involves a different
orientation for the magnetic field than is currently used in rigid disc drives, and heat assisted magnetic recording technology uses heat
generated by a laser to improve storage capacity. Our Advanced Technology Integration effort focuses rigid disc drive and component research
on recording subsystems, including read/write heads and recording media, market-specific product technology as well as technology focused
towards new business opportunities. The primary purpose of our Advanced
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