Seagate 2006 Annual Report Download - page 45

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Table of Contents
Raw Materials
We believe Seagate is leading the transition to perpendicular recording technology. We are currently shipping
perpendicular technology based products for all four major markets, and during the June 2007 quarter, we shipped
over 28 million disc drives that use perpendicular recording technology compared to 17 million disc drives shipped
in the immediately preceding quarter. We expect that by the end of fiscal year 2008, all of our drive shipments will
utilize perpendicular recording technology. Our products based on perpendicular technology require increased
quantities of precious metals like ruthenium, which has led to an increase (that is likely to continue) in the inventory
levels for these raw materials. The price of ruthenium has increased significantly over the last year and may continue
to be volatile. In addition, ruthenium has at times been difficult to acquire. We believe we have adequate supply
plans in place to support our expected perpendicular product ramp requirements.
Investments
In fiscal year 2007, we made $906 million of capital investments, $218 million of which occurred in the June
2007 quarter. For fiscal year 2008, we expect approximately $900 million in capital investment will be required to
continue to proceed with our planned media and substrate capacity expansions in Asia and to align capacity additions
with current levels of customer demand, while we continue to improve our utilization of capital equipment.
In January 2007, we completed our acquisition of EVault in an all cash transaction valued at approximately
$186 million, which includes approximately $2 million in acquisition costs as part of our effort to extend our storage
solutions offerings.
Results of Operations
We list in the tables below the historical consolidated statements of operations in dollars and as a percentage of
revenue for the fiscal years indicated.
42
Fiscal Years Ended
June 29,
June 30,
July 1,
2007
2006
2005
(In millions)
Revenue
$
11,360
$
9,206
$
7,553
Cost of revenue
9,175
7,069
5,880
Gross margin
2,185
2,137
1,673
Product development
904
805
645
Marketing and administrative
589
447
306
Amortization of intangibles
49
7
—
Restructuring and other
29
4
—
Income from operations
614
874
722
Other income (expense), net
(53
)
50
10
Income before income taxes
561
924
732
Provision for (benefit from) income taxes
(352
)
84
25
Net income
$
913
$
840
$
707