Seagate 2007 Annual Report Download - page 29

Table of Contents
tends to decline and retail demand for personal computers and consumer electronics devices tends to decrease, as does enterprise demand for
computer systems and storage subsystems. Unexpected slowdowns in demand for computer systems, storage subsystems or consumer electronic
devices generally cause sharp declines in demand for disc drive products.
Additional causes of declines in demand for our products in the past have included announcements or introductions of major new operating
systems or semiconductor improvements or changes in consumer preferences, such as the shift from desktop to notebook computers. We believe
these announcements and introductions have from time to time caused consumers to defer their purchases and made inventory obsolete.
Whenever an oversupply of disc drives causes participants in our industry to have higher than anticipated inventory levels, we experience even
more intense price competition from other disc drive manufacturers than usual.
Dependence on Distributors—We are dependent on sales to distributors and retailers, which may increase price erosion and the
volatility of our sales.
In addition to our own sales force, a substantial portion of our sales has been to distributors of desktop disc drive products. Certain of our
distributors may also market other products that compete with our products. Product qualification programs in this distribution channel are
limited, which increases the number of competing products that are available to satisfy demand, particularly in times of lengthening product
cycles. As a result, purchasing decisions in this channel are based largely on price, terms and product availability. Sales volumes through this
channel are also less predictable and subject to greater volatility than sales to our OEM customers.
To the extent that distributors reduce their purchases of our products or prices decline significantly in the distribution channel, and to the
extent that our distributor relationships are terminated, our revenues and results of operations would be adversely affected.
Accounting Charges Related to Acquisition of Maxtor and other recently acquired companies—We expect the acquisition of Maxtor
and other recently acquired companies will continue to result in additional accounting charges, which may continue to have an adverse
effect on our fiscal year 2009 operating results.
We expect that, as a result of the acquisition of Maxtor and other recently acquired companies, our fiscal year 2009 results of operations
will continue to be adversely affected by non-cash accounting charges, the most significant of which relates to the amortization of acquired
intangible assets.
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.
Some of our key customers, including Hewlett-Packard, Dell, EMC, Mitac and Bell Microproducts, account for a large portion of our disc
drive revenue. We have longstanding relationships with many of our customers, however, if any of our key customers were to significantly
reduce their purchases from us, our results of operations would be adversely affected. While sales to major customers may vary from period to
period, a major customer that permanently discontinues or significantly reduces its relationship with us could be difficult to replace. In line with
industry practice, new customers usually require that we pass a lengthy and rigorous qualification process at the customer’s cost. Accordingly, it
may be difficult or costly for us to attract new major customers. Additionally, mergers, acquisitions, consolidations or other significant
transactions involving our customers generally entail risks to our business. If a significant transaction involving any of our key customers results
in the loss of or reduction in purchases by these key customers, it could have a materially adverse effect on our business, results of operations,
financial condition and prospects.
28