Seagate 2006 Annual Report Download - page 40

Table of Contents
In addition to manufacturing and selling disc drives and branded storage products, we provide data storage
services for small to medium size businesses, including online backup, data protection and recovery solutions
through EVault, Inc. (“EVault”), which we acquired in fiscal year 2007.
Industry Overview
Our industry is characterized by several trends that have a material impact on our strategic planning, financial
condition and results of operations.
Disc Drive Industry Consolidation
Due to the significant challenges posed by the need to continually innovate and improve manufacturing
efficiency and because of the increasing amounts of capital and research and development expenditure required, the
disc drive industry has undergone significant consolidation as disc drive manufacturers and component suppliers
merged with other companies or exited the industry. Through such combinations, disc drive manufacturers have also
become increasingly vertically integrated. Our recent acquisition of Maxtor Corporation (“Maxtor”) in May 2006 is
an example of such industry consolidation. In March 2007, TDK, a disc drive head manufacturer, announced its
pending acquisition of Alps, also a disc drive head manufacturer, while in June 2007, Western Digital announced that
it is acquiring Komag. We believe industry consolidation is likely to continue in the disc drive industry through
combinations of disc drive manufacturers, component manufacturers, or both, as the technological challenges and the
associated levels of required investment grow, increasing the competitive necessity of larger-scale operations.
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, we
believe it will be necessary to continue to reduce our prices as well as introduce new product offerings that utilize
advanced technologies prior to that of 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.
Disc Drive Industry Demand Trends
We believe that the disc drive industry is experiencing the following growth trends relative to overall unit
demand, including:
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industry consolidation in which competitors aggressively use discounted price to gain market share;
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few new product introductions when multiple competitors have comparable or alternative 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.
• The broad, global expansion of the creation, aggregation, distribution and consumption of all types of digital
content has resulted in the rapid growth in demand for electronic data storage hardware solutions that either
directly utilize disc drives or indirectly drive the demand for additional disc drive storage to store, host or
back up related digital content.
• The need to address the expansion in data storage management requirements has increased the demand for
new hardware storage solutions for both mission critical and business critical enterprise storage.
Many enterprises are moving away from the use of server-attached storage to network-attached storage for
mission critical enterprise storage. We expect the market for these solutions will likely grow, resulting in