Seagate 2004 Annual Report Download - page 46

Table of Contents
no assurance that this will occur again. Given the highly seasonal nature of consumer electronics products generally, the traditional seasonal
decline in unit demand could be even greater for us in future years.
Difficulty in Predicting Quarterly Demand—If we fail to predict demand accurately for our products in any quarter, we may not be
able to recapture the cost of our investments.
The disc drive industry operates on quarterly purchasing cycles, with much of the order flow in any given quarter coming at the end of
that quarter. Our manufacturing process requires us to make significant product-specific investments in inventory in each quarter for that
quarter’s production. Because we typically receive the bulk of our orders late in a quarter after we have made our investments, there is a risk
that our orders will not be sufficient to allow us to recapture the costs of our investment before the products resulting from that investment have
become obsolete. We cannot assure you that we will be able to accurately predict demand in the future.
Other factors that may negatively impact our ability to recapture the cost of investments in any given quarter include:
• our inability to reduce our fixed costs to match sales in any quarter because of our vertical manufacturing strategy, which means that
we make more capital investments than we would if we were not vertically integrated;
• the timing of orders from, and the shipment of products to, key customers;
•
unanticipated fluctuations in unit volume purchases from our customers, particularly our distributor customers who from time to time
constitute a large portion of our total sales;
• our product mix and the related margins of the various products;
•
accelerated reduction in the price of our disc drives due to technological advances and/or an oversupply of disc drives in the market, a
condition that is exacerbated when the industry is served by multiple suppliers and shifting trends in demand which can create supply
demand imbalances;
• manufacturing delays or interruptions, particularly at our major manufacturing facilities in China, Malaysia, Singapore and Thailand;
• variations in the cost of components for our products;
• limited access to components that we obtain from a single or a limited number of suppliers;
• the impact of changes in foreign currency exchange rates on the cost of producing our products and the effective price of our
products to foreign consumers; and
Dependence on Supply of Equipment and Components—If we experience shortages or delays in the receipt of critical equipment or
components necessary to manufacture our products, we may suffer lower operating margins, production delays and other material adverse
effects.
• operational issues arising out of the increasingly automated nature of our manufacturing processes.
The cost, quality and availability of components, certain equipment and raw materials used to manufacture disc drives and key
components like media and heads are critical to our success. The equipment we use to manufacture our products and components is frequently
custom made and comes from a few suppliers and the lead times required to obtain manufacturing equipment can be significant. Particularly
important components for disc drives include read/write heads, recording media, ASICs, spindle motors, printed circuit boards and suspension
assemblies. We rely on sole suppliers or a limited number of suppliers for some of these components, including recording media that we do not
manufacture, ASICs, spindle motors, printed circuit boards and suspension assemblies. In the past, we have experienced increased costs and
production delays when we were
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