Seagate 2004 Annual Report Download - page 47

Table of Contents
unable to obtain the necessary equipment or sufficient quantities of some components and/or have been forced to pay higher prices or make
volume purchase commitments or advance deposits for some components, equipment or raw materials, such as precious metals, that were in
short supply in the industry in general.
In addition, the recent increases in demand for small form factor mobile products, such as our ST1 and Momentus drives, have led to
shortages in the components used in smaller form factor disc drives such as the glass substrates used to make the recording media for such
drives. Increasing unit growth for 3.5-inch disc drives could also put a strain on aluminum media production capacity.
Historically, the technology sector specifically, and the economy generally have experienced economic pressure, which has resulted in
consolidation among component manufacturers and may result in some component manufacturers exiting the industry or not making sufficient
investments in research to develop new components.
If there is a shortage of, or delay in supplying us with, critical components, equipment or raw materials, then:
• it is likely that our suppliers would raise their prices and, if we could not pass these price increases to our customers, our operating
margin would decline;
• we might have to reengineer some products, which would likely cause production and shipment delays, make the reengineered
products more costly and provide us with a lower rate of return on these products;
•
we would likely have to allocate the components we receive to certain of our products and ship less of others, which could reduce our
revenues and could cause us to lose sales to customers who could purchase more of their required products from manufacturers that
either did not experience these shortages or delays or that made different allocations; and
We cannot assure you that we will be able to obtain critical components in a timely and economic manner, or at all.
Importance of Reducing Operating Costs—If we do not reduce our operating expenses, we will not be able to compete effectively in
our industry.
• we might be late in shipping products, causing potential customers to make purchases from our competitors and, thus, causing our
revenue and operating margin to decline.
Our strategy involves, to a substantial degree, increasing revenue and product volume while at the same time reducing operating
expenses. In this regard, we have engaged in ongoing, company-wide manufacturing efficiency activities intended to increase productivity and
reduce costs. These activities have included closures and transfers of facilities, significant personnel reductions and efforts to increase
automation. For example, in our fourth quarter of fiscal year 2004, we undertook significant restructuring activities to reduce the costs of our
operations and we continue to look at opportunities for further cost reductions, which may result in additional restructuring activities in the
future. We cannot assure you that our efforts will result in the increased profitability, cost savings or other benefits that we expect. Moreover,
the reduction of personnel and closure of facilities may adversely affect our ability to manufacture our products in required volumes to meet
customer demand and may result in other disruptions that affect our products and customer service. In addition, the transfer of manufacturing
capacity of a product to a different facility frequently requires qualification of the new facility by some of our OEM customers. We cannot
assure you that these activities and transfers will be implemented on a cost-effective basis without delays or disruption in our production and
without adversely affecting our customer relationships and results of operations.
Industry Demand—Changes in demand for computer systems and storage subsystems has caused and may cause in the future a
decline in demand for our products.
Our disc drives are components in computers, computer systems, storage subsystems and consumer electronics devices. The demand for
these products has been volatile. In a weak economy, consumer spending
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