Seagate 2006 Annual Report Download - page 16

Table of Contents
Price Erosion. Our industry has been characterized by continuous price erosion for disc drive products with
comparable capacity, performance and feature sets (i.e., “like-for-like products”). Price erosion for like-for-like
products is more pronounced during periods of:
Disc drive manufacturers typically attempt to off-set price erosion with an improved mix of disc drive products
characterized by higher capacity, better performance and additional feature sets and/or product cost reductions.
We expect that price erosion in our industry will continue for the foreseeable future. To remain competitive, it
will be necessary to continue to reduce our prices, as well as introduce new product offerings with increased disc
drive capacities and/or improved feature sets, utilizing advanced technologies prior to our competitors to take
advantage of potentially higher initial profit margins and reduced cost structure on these new products. We have
established production facilities in China, Malaysia, Singapore and Thailand to achieve cost reductions.
Product Life Cycles and Changing Technology. Historically, competition and changing customer preference
and demand in the electronic data storage industry have shortened product life cycles and caused acceleration in the
development and introduction of new technology. We believe that our future success will depend upon our ability to
develop, manufacture and market products of high quality and reliability which meet changing user needs and which
successfully anticipate or respond to changes in technology and standards on a cost-effective and timely basis.
Introduction of any technology that delivers storage at an attractive price, or has other features not available to disc
drives, will be disruptive to the disc drive industry. Product life cycles are also being shortened with the increasing
capabilities of flash and SSD. For example, our 1-inch disc drive’s life cycle was shortened when it was replaced by
flash memory in smaller capacity handheld consumer electronics applications.
Seasonality
The disc drive industry traditionally experiences seasonal variability in demand with higher levels of demand in
the second half of the calendar year. This seasonality is driven by consumer spending in the back-to-school season
from late summer to fall and the traditional holiday shopping season from fall to winter. In addition, corporate
demand is higher during the second half of the calendar year when IT budget calendars typically provide for more
spending.
Research and Development
We are committed to developing new component technologies and products and evaluating alternative storage
technologies, including flash storage technology. We have increased our focus on research and development and
realigned our disc drive development process. This structured product process is designed to bring new products to
market in a high volume environment and with quality attributes that our customers expect. Our research group,
which is based in Pittsburgh, Pennsylvania, is dedicated to the transition and extending the capacity of perpendicular
recording technology as well as exploring alternative data storage technologies. Our advanced technology integration
effort focuses disc drive and component research on recording subsystems, including read/write heads and recording
media, market-specific product technology as well as technology focused towards new business opportunities. The
primary purpose of our advanced technology integration effort is to ensure timely availability of mature component
technologies to our product development teams as well as allowing us to leverage and coordinate those technologies
in the design centers across our products in order to take advantage of opportunities in the marketplace. During fiscal
years 2007, 2006 and 2005, we had product development expenses of $904 million, $805 million and $645 million,
respectively, which represented 8%, 9% and 9% of our consolidated revenue, respectively.
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industry consolidation in which competitors aggressively use discounted price to gain market share;
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few newer product introductions when multiple competitors have comparable product offerings;
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temporary imbalances between industry supply and demand; and
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seasonally weaker demand which may cause excess supply.