Seagate 2003 Annual Report Download - page 40

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Table of Contents
Risk Factors
Risks Related to Our Business
Competition—Our industry is highly competitive and our products have experienced significant price erosion and market share
variability.
Even during periods when demand is stable, the rigid disc drive industry is intensely competitive and vendors typically experience
substantial price erosion over the life of a product. Our competitors have historically offered 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. We may need to reduce our prices to retain our
market share, which could adversely affect our results of operations. Based on our recent experience in the industry with respect to new product
introductions, we believe that the rate of increase in areal density, or the storage capacity per square inch on a disc, is slowing from its previous
levels. This trend may contribute to increased average price erosion. To the extent that historical price erosion patterns continue, product life
cycles may lengthen, our competitors may have more time to enter the market for a particular product and we may be unable to offset these
factors with new product introductions at higher average prices. A second trend that may contribute to increased average price erosion is the
growth of sales to distributors that serve producers of non-branded products in the personal storage sector. These customers generally have
limited product qualification programs, which increases the number of competing products available to satisfy their demand. As a result,
purchasing decisions for these customers are based largely on price and terms. Any increase in our average price erosion would have an
adverse effect on our result of operations.
Moreover, a significant portion of our success historically has been a result of increasing our market share at the expense of our
competitors. However, in the first fiscal quarter of 2004, our market share for our enterprise products was negatively affected by our customers’
diversifying their sources of supply as the slowing areal density curve has resulted in longer product cycles and more time for our competitors
to enter the market for particular products. Additionally, in the third fiscal quarter of 2004, our market share for notebook drive products was
negatively affected by an oversupply condition in our customers’ supply chain. Any significant further decline in our market share would
adversely affect our results of operations.
Principal Competitors—We compete with both captive manufacturers, who do not depend solely on sales of rigid disc drives to
maintain their profitability, and independent manufacturers, whose primary focus is producing technologically advanced rigid disc drives.
We have experienced and expect to continue to experience intense competition from a number of domestic and foreign companies,
including other independent rigid disc drive manufacturers and large captive manufacturers such as:
The term “independent” in this context refers to manufacturers that primarily produce rigid disc drives as a stand-alone product, and the term
“captive” refers to rigid disc drive manufacturers who themselves or through affiliated entities produce complete computer or other systems
that contain rigid disc drives or other information storage products. Captive manufacturers are formidable competitors because they have the
ability to determine pricing for complete systems without regard to the margins on individual components. Because components other than
rigid disc drives generally contribute a greater portion of the operating margin on a complete computer system than do rigid disc drives, captive
manufacturers do not necessarily need to realize a profit on the rigid disc drives included in a computer system and, as a result, may be willing
to sell rigid disc drives to third parties at very low margins. Many captive manufacturers are also formidable competitors because they have
more
39
Captive
Independent
Fujitsu Limited
Maxtor Corporation
Hitachi Global Storage Technologies
Western Digital Corporation
Samsung Electronics Incorporated
Toshiba Corporation