Seagate 2006 Annual Report Download - page 27

Table of Contents
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.
Some of our key customers, including HP, Dell, Sony Corporation (“Sony”), EMC and IBM, account for a large
portion of our disc drive revenue. Our recent acquisition of Maxtor may increase our business with certain of our
larger customers. We have longstanding relationships with many of our customers, however, if any of our key
customers were to significantly reduce their purchases from us, our results of operations would be adversely affected.
While sales to major customers may vary from period to period, a major customer that permanently discontinues or
significantly reduces its relationship with us could be difficult to replace. In line with industry practice, new
customers usually require that we pass a lengthy and rigorous qualification process at the customer’s cost.
Accordingly, it may be difficult or costly for us to attract new major customers. Additionally, mergers, acquisitions,
consolidations or other significant transactions involving our customers generally entail risks to our business. If a
significant transaction involving any of our key customers results in the loss of or reduction in purchases by these
key customers, it could have a materially adverse effect on our business, results of operations, financial condition and
prospects.
Impact of Technological Change — Increases in the areal density of disc drives may outpace customers’
demand for storage capacity.
The rate of increase in areal density, or storage capacity per square inch on a disc, may be greater than the
increase in our customers’ demand for aggregate storage capacity, particularly in certain market applications like
commercial desktop compute. As a result, our customers’ storage capacity needs may be satisfied with lower priced,
low capacity disc drives. These factors could decrease our sales, especially when combined with continued price
erosion, which could adversely affect our results of operations.
Changes in Information Storage Products — Future changes in the nature of information storage products
may reduce demand for traditional disc drive products.
We expect that in the future, new personal computing devices and products will be developed, some of which,
such as Internet appliances, may not contain a disc drive. While we are investing development resources in designing
disc drives for new applications, it is too early to assess the impact of these new applications on future demand for
disc drive products. Products using alternative technologies, such as flash memory, optical storage and other storage
technologies could become a significant source of competition to particular applications of our products, which could
adversely affect our results of operations.
New Product Development and Technological Change — If we do not develop products in time to keep pace
with technological changes, our operating results will be adversely affected.
Our customers have demanded new generations of disc drive products as advances in computer hardware and
software have created the need for improved storage products, with features such as increased storage capacity,
improved performance and reliability and lower cost. We, and our competitors, have developed improved products,
and we will need to continue to do so in the future. For the fiscal years 2007, 2006 and 2005, we had product
development expenses of $904 million, $805 million and $645 million, respectively. We cannot assure you that we
will be able to successfully complete the design or introduction of new products in a timely manner, that we will be
able to manufacture new products in sufficient volumes with acceptable manufacturing yields, that we will be able to
successfully market these new products or that these products will perform to specifications on a long-term basis. In
addition, the impact of slowing areal density growth may adversely impact our ability to be successful.
When we develop new products with higher capacity and more advanced technology, our operating results may
decline because the increased difficulty and complexity associated with producing these products increases the
likelihood of reliability, quality or operability problems. If our products suffer increases in failures, are of low quality
or are not reliable, customers may reduce their purchases of our products and our manufacturing rework and scrap
costs and service and warranty costs may increase. In addition, a decline in the reliability of our products may make
us less competitive as compared with other disc drive manufacturers.
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