Seagate 2007 Annual Report Download - page 25

Table of Contents
performance ruggedness have resulted in flash memory largely replacing disc drives in handheld applications. We believe that the demand for
disc drives to store or back up related media content from such handheld devices, however, continues to grow. While this competition has
traditionally been limited to the markets for handheld consumer electronics applications, these competitors have announced SSDs for notebook
and enterprise compute applications.
If we do not suitably adapt our product offerings to successfully introduce additional smaller form factor disc drives or alternative storage
products based on flash storage technology, or if our competitors are successful in achieving customer acceptance of SSD products for notebook
and enterprise compute applications, then our customers may decrease the amounts of our products that they purchase, which would adversely
affect our results of operations.
Seasonality—Because we experience seasonality in the sales of our products, our results of operations will generally be adversely
impacted during the second half of our fiscal year.
Sales of computer systems, storage subsystems and consumer electronics tend to be seasonal, and therefore we expect to continue to
experience seasonality in our business as we respond to variations in our customers’ demand for disc drives. In particular, we anticipate that
sales of our products will continue to be lower during the second half of our fiscal year. In the mobile compute, desktop compute and consumer
electronics sectors of our business, this seasonality is partially attributable to our customers’
increased sales of personal computers and consumer
electronics during the winter holiday season. In the enterprise sector of our business, our sales are seasonal because of the capital budgeting and
purchasing cycles of our end users. Since our working capital needs peak during periods in which we are increasing production in anticipation of
orders that have not yet been received, our operating results will fluctuate seasonally even if the forecasted demand for our products proves
accurate. Furthermore, it is difficult for us to evaluate the degree to which this seasonality may affect our business in future periods because of
the rate and unpredictability of product transitions and new product introductions, particularly in the consumer electronics market.
Difficulty in Predicting Quarterly Demand—If we fail to predict demand accurately for our products in any quarter, we may not be
able to recapture the cost of our investments.
The disc drive industry operates on quarterly purchasing cycles, with much of the order flow in any given quarter coming at the end of that
quarter. Our manufacturing process requires us to make significant product-specific investments in inventory in each quarter for that quarter’s
production. Since we typically receive the bulk of our orders late in a quarter after we have made our investments, there is a risk that our orders
will not be sufficient to allow us to recapture the costs of our investment before the products resulting from that investment have become
obsolete. We cannot assure you that we will be able to accurately predict demand in the future.
Another factor that may negatively affect our ability to recapture costs of investments in future quarters is the current uncertain condition
of the domestic and global economy. The current uncertainty in economic and political conditions in many of our markets may have an affect on
demand for our products and render budgeting and forecasting difficult. The difficulty in forecasting demand increases the difficulty in
anticipating our inventory requirements, which may cause us to over-produce finished goods, resulting in inventory write-offs, or under-produce
finished goods, affecting our ability to meet customer requirements. Additionally, the risk of inventory write-offs could increase if we were to
continue to hold higher inventory levels. We cannot be certain that we will be able to recover the costs associated with increased inventory.
Other factors that may negatively impact our ability to recapture the cost of investments in any given quarter include:
• the impact of variable demand and an aggressive pricing environment for disc drives;
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the impact of competitive product announcements and possible excess industry supply both with respect to particular disc drive
products and with respect to competing alternative storage technology solutions such as SSDs in notebook and enterprise compute
applications;