Seagate 2007 Annual Report Download - page 47

Table of Contents
addition, corporate demand is typically higher during the second half of the calendar year when IT budget calendars provide for more spending.
We expect the disc drive industry to experience normal seasonal patterns of increased demand for the September 2008 quarter.
Recording Heads and Media
Due to industry consolidation there are limited number of independent suppliers of recording heads and media available to disc drive
manufacturers. As a result, vertically integrated disc drive manufacturers, who manufacture their own recording heads and media, are less
dependent on external supply of recording heads and media than less vertically integrated disc drive manufacturers. While we believe that there
is adequate supply to meet currently identified industry demand, these consolidations may limit the supply of recording heads and media from
independent suppliers in the long-term.
Commodity and Other Manufacturing Costs
The production of disc drives requires precious metals, scarce alloys and industrial commodities, that are subject to fluctuations in prices,
and the supply of which has at times been constrained. Recent increases in the price of many commodities have resulted in higher costs of
materials used in the manufacture of disc drive products. Additionally, adverse economic conditions such as rising fuel costs may further
increase commodity, manufacturing and freight costs. Should the disc drive industry not be able to pass these costs onto customers, gross
margins may be impacted.
Industry Supply Balance
Historically, the industry has from time to time experienced periods of imbalances between supply and demand. To the extent that the disc
drive industry builds capacity and products based on expectations of demand that do not materialize, there may be an oversupply of products that
could lead to increased price erosion. Conversely, during periods where demand exceeds supply, price erosion is generally more benign. The
industry, excluding Seagate, exited the June 2008 quarter with what we believe to be approximately five weeks of distribution inventory in the
desktop channel, which is consistent with historical seasonal patterns.
Seagate Overview
We are the world
’
s leading provider of hard disc drives, based on revenue and units shipped. Our products address the enterprise, desktop,
mobile computing and CE and branded solutions storage markets. The Seagate 3.5-inch and 2.5-
inch disc drive units used in our branded storage
products are reported in the desktop and mobile market information, respectively. We maintain a highly integrated approach to our business by
designing and manufacturing a significant portion of the components we view as critical to our products, such as read/write heads and recording
media. We believe that our control of these key technologies, combined with our platform design and manufacturing, will enable us to achieve
product performance, time-to-market leadership and manufacturing flexibility, which will allow us to respond to customers and market
opportunities. Our technology ownership, combined with our integrated design and manufacturing approach, has allowed us to effectively
leverage our leadership in traditional computing to enter new markets with only incremental product development and manufacturing costs.
Maxtor Acquisition
During fiscal year 2007, we completed our integration of Maxtor, including customer and product transitions where we replaced Maxtor
designed disc drive products with Seagate designed disc drive products. Our fiscal year 2007 included Maxtor’s operating losses largely
recognized during the first half of fiscal year 2007 as we transitioned Maxtor products to Seagate products and acquisition and integration related
charges recognized over the entire fiscal year. We expect to continue to incur charges, the most significant of which are expected to be the
amortization of acquired intangible assets.
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