Seagate 2003 Annual Report Download - page 49

Table of Contents
delays in delivery schedules have had a material adverse effect on our results of operations in the past and may do so again in the future. Our
OEMs and distributors typically furnish us with non-binding indications of their near term requirements, with product deliveries based on
weekly confirmations. If actual orders from distributors and OEMs decrease from their non-binding forecasts, these variances could have a
material adverse effect on our business, results of operations, financial condition and prospects.
Economic Risks Associated with International Operations—Our international operations subject us to risks related to currency
exchange fluctuations, longer payment cycles for sales in foreign countries, seasonality and disruptions in foreign markets, tariffs and
duties, price controls, potential adverse tax consequences, increased costs, our customers’ credit and access to capital and health-related
risks.
We have significant operations in foreign countries, including manufacturing facilities, sales personnel and customer support operations.
For fiscal years 2004, 2003 and 2002, approximately 30%, 31% and 31%, respectively, of our rigid disc drive revenue were from sales to
customers located in Europe and approximately 40%, 35% and 30%, respectively, were from sales to customers located in the Far East. We
have manufacturing facilities in China, Malaysia, Northern Ireland, Singapore and Thailand, in addition to those in the United States. A
substantial portion of our desktop rigid disc drive assembly occurs in our facility in China.
Our international operations are subject to economic risks inherent in doing business in foreign countries, including the following:
•
Disruptions in Foreign Markets
. Disruptions in financial markets and the deterioration of the underlying economic conditions in
the past in some countries, including those in Asia, have had an impact on our sales to customers located in, or whose end-user
customers are located in, these countries.
•
Fluctuations in Currency Exchange Rates
. Prices for our products are denominated predominately in U.S. dollars, even when sold
to customers that are located outside the United States. Currency instability in Asia and other geographic markets may make our
products more expensive than products sold by other manufacturers that are priced in the local currency. Moreover, many of the costs
associated with our operations located outside the United States are denominated in local currencies. As a consequence, the increased
strength of local currencies against the U.S. dollar in countries where we have foreign operations would result in higher effective
operating costs and, potentially, reduced earnings. Recent fluctuations in foreign exchange rates have had a negative effect on our
operations and profitability and there can be no assurance that these fluctuations will not become more aggravated and result in a
material adverse effect on our operations and profitability.
•
Longer Payment Cycles
. Our customers outside of the United States are often allowed longer time periods for payment than our
U.S. customers. This increases the risk of nonpayment due to the possibility that the financial condition of particular customers may
worsen during the course of the payment period.
• Seasonality . Seasonal reductions in the business activities of our customers during the summer months, particularly in Europe,
typically result in lower earnings during those periods.
• Tariffs, Duties, Limitations on Trade and Price Controls . Our international operations are affected by limitations on imports,
currency exchange control regulations, transfer pricing regulations, price controls and other restraints on trade. In addition, the
governments of many countries, including China, Malaysia, Singapore and Thailand, in which we have significant operating assets,
have exercised and continue to exercise significant influence over many aspects of their domestic economies and international trade.
•
Potential Adverse Tax Consequences
. Our international operations create a risk of potential adverse tax consequences, including
imposition of withholding or other taxes on payments by subsidiaries.
48
•
Increased Costs
. The shipping and transportation costs associated with our international operations are typically higher than those
associated with our U.S. operations, resulting in decreased operating margins in some foreign countries.