Seagate 2006 Annual Report Download - page 24

Table of Contents
Dependence on Sales of Disc Drives in Consumer Electronics Applications — Our sales of disc drives for
consumer electronics applications which have contributed significant revenues to our results, can experience
significant volatility due to seasonal and other factors which could materially adversely impact our future
results of operations.
Our sales of disc drives for consumer electronics applications have contributed significant revenues to our
results for the past several years. The growth rate in consumer electronics products has recently begun to moderate
and show more seasonal demand variability. The demand for consumer electronics products can be even more
volatile and unpredictable than the demand for compute products. In some cases, our products manufactured for
consumer electronics applications are uniquely configured for a single customer’s applications, which creates a risk
of exposure if the anticipated volumes are not realized. This potential for unpredictable volatility is increased by the
possibility of competing alternative storage technologies like flash memory, meeting the customers’ cost and
capacity metrics, resulting in a rapid shift in demand from our products and disc drive technology, generally, to
alternative storage technologies. Unpredictable fluctuations in demand for our products or rapid shifts in demand
from our products to alternative storage technologies in new consumer electronics applications could materially
adversely impact our future results of operations.
Dependence on Supply of Components, Equipment, and Raw Materials — If we experience shortages or delays
in the receipt of critical components, equipment or raw materials necessary to manufacture our products, we
may suffer lower operating margins, production delays and other material adverse effects.
The cost, quality and availability of components, certain equipment and raw materials used to manufacture disc
drives and key components like recording 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, aluminum or glass substrates for 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
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component supply for our competitors), and with respect to competing alternative storage technology
solutions such as SSDs in notebook and enterprise applications;
• 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;
• dependence on our ability to successfully qualify, manufacture and sell in increasing volumes on a cost-
effective basis and with acceptable quality its disc drive products, particularly the new disc drive products
with lower cost structures;
• uncertainty in the amount of purchases from 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
•
operational issues arising out of the increasingly automated nature of our manufacturing processes.