Seagate 2006 Annual Report Download - page 14

Table of Contents
During fiscal year 2007, we launched our FreeAgent product line of external backup storage and we also currently
ship the Maxtor OneTouch
TM
product line of external backup storage, with both these product lines utilizing our 3.5-
inch Barracuda and 2.5-inch Momentus disc drives with capacities up to 750GB.
Customers
We sell our disc drive products primarily to major OEMs and distributors. OEM customers incorporate our disc
drives into computer systems and storage systems for resale. Distributors typically sell our disc drives to small
OEMs, dealers, system integrators and other resellers. Shipments to OEMs were approximately 64%, 72% and 72%
of our disc drive revenue in fiscal years 2007, 2006 and 2005, respectively. Shipments to distributors were
approximately 30%, 25% and 26% of our disc drive revenue in fiscal years 2007, 2006 and 2005, respectively. Sales
to HP accounted for approximately 16%, 17% and 18% of our disc drive revenue in fiscal years 2007, 2006 and
2005, respectively, while sales to Dell, as a percentage of our disc drive revenue, were 9%, 11% and 12% in fiscal
years 2007, 2006 and 2005, respectively. No other customer accounted for 10% or more of our disc drive revenue in
fiscal years 2007, 2006 and 2005. Retail sales of our branded storage products in fiscal year 2007 as a percentage of
our disc drive revenue increased to 6% from 3% and 2% in fiscal years 2005 and 2004, respectively. See “Item 1A.
Risk Factors Related to Our Business — Dependence on Key Customers — We may be adversely affected by the
loss of, or reduced, delayed or cancelled purchases by, one or more of our larger customers.”
OEM customers typically enter into master purchase agreements with us. These agreements provide for pricing,
volume discounts, order lead times, product support obligations and other terms and conditions. The term of these
agreements is usually 12 to 36 months, although our product support obligations generally extend substantially
beyond this period. These master agreements typically do not commit the customer to buy any minimum quantity of
products, or create exclusive relationships. Deliveries are scheduled only after receipt of purchase orders. In addition,
with limited lead-time, customers may cancel or defer most purchase orders without significant penalty. Anticipated
orders from many of our customers have in the past failed to materialize or OEM delivery schedules have been
deferred or altered as a result of changes in their business needs.
Our distributors generally enter into non-exclusive agreements for the redistribution of our products. They
typically furnish us with a non-binding indication of their near-term requirements and product deliveries are
generally scheduled based on a weekly confirmation by the distributor of its requirements for that week. The
agreements typically provide the distributors with price protection with respect to their inventory of our disc drives at
the time of a reduction by us in our selling price for the disc drives and also provide limited rights to return the
product.
We have significantly increased our sales of branded storage products to retail customers in the last two years
with the Maxtor acquisition further expanding our retail customer base. Retail sales typically require higher
marketing support, sales incentives and longer price protection periods.
We also regularly enter into agreements with our customers, which obligate us to provide a limited indemnity
against losses resulting from intellectual property claims. These agreements are customary in our industry and
typically require us to indemnify our customer against certain damages and costs incurred as a result of third party
intellectual property claims arising as a result of their use of our products.
Sales, Marketing and Customer Service
Our marketing organization works to increase demand for our disc drive products through strategic collaboration
with key OEM customers and distribution partners to align our respective product roadmaps and to build our brand
and end-customer relationships. As customer and markets increasingly demand a broad variety of products with
different performance and cost attributes, we have recently organized our marketing organization with groups
focused on the strategic needs of our increasingly diverse customer base. We believe this enables us to serve both our
core markets and better identify, develop and serve emerging markets.
Our sales organization focuses on deepening our relationship with our customers. The worldwide sales group
focuses on geographic coverage of OEMs and distributors throughout most of the world. The worldwide sales group
is organized by customer type and regionally among North America, Japan, Asia-Pacific (excluding Japan) and
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