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Table of Contents
Some of the statements and assumptions included in this Annual Report on Form 10-K are forward-
looking statements, including, in particular,
statements about our plans, strategies and prospects in “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” in Item 7. These statements identify prospective information. These forward-
looking statements are based on current expectations,
forecasts and assumptions and involve a number of risks and uncertainties that could cause actual results to differ, possibly materially, from
those in the forward-looking statements. These risks include, among others, risks related to price and product competition in our industry,
customer demand for our products, the development and introduction of new products, the impact of technological advances, risks related to
our intellectual property, general market conditions and the factors listed in the “Risk Factors” section of Item 7 of this Annual Report on
Form 10
-K. We undertake no obligation to update forward-
looking statements to reflect events or circumstances after the date they were made.
PART I
ITEM 1. BUSINESS
We are a leader in the design, manufacturing and marketing of rigid disc drives. Rigid disc drives, which are commonly referred to as
disc drives or hard drives, are used as the primary medium for storing electronic information in systems ranging from desktop and notebook
computers, and consumer electronics devices to data centers delivering information over corporate networks and the Internet. We produce a
broad range of disc drive products that make us a leader in the industry with products addressing enterprise applications, where our products
are used in enterprise servers, mainframes and workstations; desktop applications, where our products are used in desktop computers; mobile
computing applications, where our products are used in notebook computers; and consumer electronics applications where our products are
used in a wide variety of devices such as digital video recorders, digital music players and gaming devices.
We sell our disc drives primarily to major original equipment manufacturers, or OEMs, and also market to distributors under our globally
recognized brand name. For fiscal years 2005, 2004 and 2003, approximately 72%, 64% and 63%, respectively, of our disc drive revenue was
from sales to OEMs, including customers such as Hewlett-Packard, Dell, IBM, EMC and Apple. We have longstanding relationships with
many of these OEM customers. We also have key relationships with major distributors, who sell our disc drive products to small OEMs,
dealers, system integrators and retailers throughout most of the world. Also, we are currently expanding our direct sales to retailers. For fiscal
years 2005, 2004 and 2003, approximately 31%, 29% and 33%, respectively, of our disc drive revenue came from customers located in North
America, approximately 28%, 33% and 31%, respectively, came from customers located in Europe and approximately 41%, 38% and 36%,
respectively, came from customers located in the Far East. Substantially all of our revenue is denominated in U.S. dollars.
Industry
Demand for Electronic Data Storage
We believe that the amount of data stored and accessed electronically is growing rapidly and that there are a number of key factors
driving this demand. We are particularly focused on three areas of growing demand for disc drives:
Growth in Disc Drives for Consumer Electronics . High-performance computing and communications functions and, increasingly, disc
drives are being incorporated into consumer electronics devices such as digital video recorders, digital music players, video game consoles and
advanced television set-top boxes. In addition, faster connections to the Internet and increased broadband capacity have encouraged consumers
to download greater amounts of text, video and audio data, expanding the market for disc drives for use in new consumer and entertainment
appliances. The adoption and rapid growth of the use of disc drives in these applications will be facilitated by the development of low-cost disc
drives that meet the pricing requirements of the consumer electronics market.
3