Seagate 2007 Annual Report Download - page 34

Table of Contents
Economic Risks Associated with International Operations—Our international operations subject us to risks related to currency
exchange fluctuations, longer payment cycles for sales in foreign countries, seasonality and disruptions in foreign markets, tariffs and
duties, price controls, potential adverse tax consequences, increased costs, our customers’ credit and access to capital and health-related
risks.
We have significant operations in foreign countries, including manufacturing facilities, sales personnel and customer support operations.
We have manufacturing facilities in China, Malaysia, Northern Ireland, Singapore and Thailand, in addition to those in the United States. A
substantial portion of our desktop disc drive assembly occurs in our facility in China.
Our international operations are subject to economic risks inherent in doing business in foreign countries, including the following:
•
Disruptions in Foreign Markets.
Disruptions in financial markets and the deterioration of the underlying economic conditions in the
past in some countries, including those in Asia, have had an impact on our sales to customers located in, or whose end-user customers
are located in, these countries.
•
Fluctuations in Currency Exchange Rates.
Prices for our products are denominated predominately in U.S. dollars, even when sold to
customers that are located outside the United States. Currency instability in Asia and other geographic markets may make our products
more expensive than products sold by other manufacturers that are priced in the local currency. Moreover, many of the costs
associated with our operations located outside the United States are denominated in local currencies. As a consequence, the increased
strength of local currencies against the U.S. dollar in countries where we have foreign operations would result in higher effective
operating costs and, potentially, reduced earnings. From time to time, fluctuations in foreign exchange rates have negatively affected
our operations and profitability and there can be no assurance that these fluctuations will not adversely affect our operations and
profitability in the future.
•
Longer Payment Cycles.
Our customers outside of the United States are often allowed longer time periods for payment than our
U.S. customers. This increases the risk of nonpayment due to the possibility that the financial condition of particular customers may
worsen during the course of the payment period.
• Seasonality. Seasonal reductions in the business activities of our customers during the summer months, particularly in Europe,
typically result in lower earnings during those periods.
•
Tariffs, Duties, Limitations on Trade and Price Controls.
Our international operations are affected by limitations on imports,
currency exchange control regulations, transfer pricing regulations, price controls and other restraints on trade. In addition, the
governments of many countries, including China, Malaysia, Singapore and Thailand, in which we have significant operating assets,
have exercised and continue to exercise significant influence over many aspects of their domestic economies and international trade.
•
Potential Adverse Tax Consequences.
Our international operations create a risk of potential adverse tax consequences, including
imposition of withholding or other taxes on payments by subsidiaries.
•
Increased Costs.
The shipping and transportation costs associated with our international operations are typically higher than those
associated with our U.S. operations, resulting in decreased operating margins in some foreign countries.
33
• Credit and Access to Capital Risks. Our international customers could have reduced access to working capital due to higher interest
rates, reduced bank lending resulting from contractions in the money supply or the deterioration in the customer’s or its bank’s
financial condition, or the inability to access other financing.