Seagate 2007 Annual Report Download - page 27

Table of Contents
Dependence on Sales of Disc Drives in Consumer Electronics Applications—Our sales of disc drives for consumer electronics
applications which have contributed significant revenues to our results, can experience significant volatility due to seasonal and other
factors, which could materially adversely impact our future results of operations.
Our sales of disc drives for consumer electronics applications have contributed significant revenues to our results for the past several years.
The growth rate in consumer electronics products has recently begun to moderate and show more seasonal demand variability. The demand for
consumer electronics products can be even more volatile and unpredictable than the demand for compute products, particularly as it is difficult to
predict the cycles in which, for example, new gaming products are launched and consumer uptake of those products. In some cases, our products
manufactured for consumer electronics applications are uniquely configured for a single customer’s application, which creates a risk of exposure
if the anticipated volumes are not realized. This potential for unpredictable volatility is increased by the possibility of competing alternative
storage technologies like flash memory, meeting the customers’ cost and capacity metrics, resulting in a rapid shift in demand from our products
and disc drive technology, generally, to alternative storage technologies. Unpredictable fluctuations in demand for our products or rapid shifts in
demand from our products to alternative storage technologies in new consumer electronics applications could materially adversely impact our
future results of operations.
Dependence on Sales of Disc Drives Directly to Consumers Through Retail Outlets—Our sales of disc drives directly to consumers
through retail outlets can experience significant volatility due to seasonal and other factors which could materially adversely impact our
future results of operations.
We believe that industry demand for storage products is increasing due to the proliferation of media-rich digital content in consumer
applications and is fuelling increased consumer demand for storage. This has led to the expansion of solutions such as external storage products
to provide additional storage capacity and to secure data in case of disaster or system failure, or to provide independent storage solutions for
multiple users in home or small business environments. The current uncertainty in the domestic and global economy may negatively affect
demand for such products. Further, such retail sales of our branded solutions traditionally experiences seasonal variability in demand with higher
levels of demand in the second half of the calendar year driven by consumer spending in the back-to-school season from late summer to fall and
the traditional holiday shopping season from fall to winter. Additionally, our ability to reach such consumers depends on our maintaining
effective working relationships with major retail and online distributors. Failure to anticipate consumer demand for our branded solutions as well
as an inability to maintain effective working relationships with retail and online distributors may adversely impact our future results of
operations.
Dependence on Supply of Components, Equipment, and Raw Materials—If we experience shortages or delays in the receipt of critical
components, equipment or raw materials necessary to manufacture our products, we may suffer lower operating margins, production delays
and other material adverse effects.
The cost, quality and availability of components, certain equipment and raw materials used to manufacture disc drives and key components
like recording media and heads are critical to our success. The equipment we use to manufacture our products and components is frequently
custom made and comes from a few suppliers and the lead times required to obtain manufacturing equipment can be significant. Particularly
important components for disc drives include read/write heads, aluminum or glass substrates for recording media, ASICs, spindle motors, printed
circuit boards and suspension assemblies. We rely on sole suppliers or a limited number of suppliers for some of these components, including
media, aluminum and glass substrates that we do not manufacture, recording media and heads, ASICs, spindle motors, printed circuit boards and
suspension assemblies. If our vendors for these components are unable to meet our requirements, we could experience a shortage in supply,
which would adversely affect our results of operations.
In the past, we have experienced increased costs and production delays when we were unable to obtain the necessary equipment or
sufficient quantities of some components and/or have been forced to pay higher prices or
26