Seagate 2007 Annual Report Download - page 14

Table of Contents
Branded Solutions
Our branded solutions business provides storage products including various home and office storage applications. We ship external backup
storage solutions under our Free Agent
TM
and Maxtor OneTouch
TM
product lines. Both of these product lines utilize our 3.5-inch and 2.5-inch
disc drives, which are available in capacities up to 2TB and 320GB, respectively.
Customers
We sell our disc drive products primarily to major OEMs and distributors. OEM customers, either themselves or through their contract
manufacturers, incorporate our disc drives into computer systems and storage systems for resale. Distributors typically sell our disc drives to
small OEMs, dealers, system integrators and other resellers. Shipments to OEMs were approximately 67%, 64% and 72% of our disc drive
revenue in fiscal years 2008, 2007 and 2006, respectively. Shipments to distributors were approximately 26%, 30% and 25% of our disc drive
revenue in fiscal years 2008, 2007 and 2006, respectively. The only customer exceeding 10% of our disc drive revenue for fiscal years 2006
through 2008 was HP. Dell exceeded 10% of our disc drive revenue in fiscal years 2008 and 2006. Sales to HP accounted for approximately
16%, 16% and 17% of our disc drive revenue in fiscal years 2008, 2007 and 2006, respectively. Sales to Dell, as a percentage of our disc drive
revenue, were 11%, 9% and 11% in fiscal years 2008, 2007 and 2006, respectively. No other customer accounted for 10% or more of our disc
drive revenue in fiscal years 2008, 2007 and 2006. Retail sales of our branded storage products in fiscal year 2008 as a percentage of our disc
drive revenue increased to 7% from 6% and 3% in fiscal years 2007 and 2006, respectively. See “Item 1A. Risk Factors—Risks Related to Our
Business—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.”
OEM customers typically enter into master purchase agreements with us. These agreements provide for pricing, volume discounts, order
lead times, product support obligations and other terms and conditions. The term of these agreements is usually 12 to 36 months, although our
product support obligations generally extend substantially beyond this period. These master agreements typically do not commit the customer to
buy any minimum quantity of products, or create exclusive relationships. Deliveries are scheduled only after receipt of purchase orders. In
addition, with limited lead-time, customers may cancel or defer most purchase orders without significant penalty. Anticipated orders from many
of our customers have in the past failed to materialize or OEM delivery schedules have been deferred or altered as a result of changes in their
business needs.
Our distributors generally enter into non-exclusive agreements for the resale of our products. They typically furnish us with a non-binding
indication of their near-term requirements and product deliveries are generally scheduled accordingly. The agreements and related sales
programs typically provide the distributors with limited right of return and price protection rights. In addition, we offer sales programs to
distributors on a quarterly and periodic basis to promote the sale of selected products in the sales channel.
We have increased our sales of branded storage products to retail customers in the last two years further expanding our retail customer
base. Our branded storage product is sold to retailers either by us directly or by our distributors. Retail sales made by us or our distributors
typically require greater marketing support, sales incentives and price protection periods.
We also regularly enter into agreements with our customers, which obligate us to provide a limited indemnity against losses resulting from
intellectual property claims. These agreements are customary in our industry and typically require us to indemnify our customers against certain
damages and costs incurred as a result of third party intellectual property claims arising as a result of their use of our products.
Sales, Marketing and Customer Service
Our marketing organization works to increase demand for our disc drive products through strategic collaboration with key OEM customers
and distribution partners to align our respective product roadmaps and to
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