Seagate 2007 Annual Report Download - page 9

Table of Contents
Disc Drives for Branded Solutions . We believe that the proliferation of media-rich digital content has increased consumer demand for
storage to augment their current desktop or notebook disc drive capacities. Consumers are also using external branded storage solutions to
backup and secure data in case of disaster or system failure.
Disc Drives for Desktop Computing. We believe growth in disc drives for desktop computing has recently moderated, in part due to the
growth in demand for notebook computers, particularly in developed countries. We believe that current growth in demand for disc drives in
desktop computing is focused on developing markets where price remains a primary consideration. Demand for inexpensive, high capacity
external storage has also driven growth of 3.5-inch desktop disc drives.
Disc Drives for Consumer Electronics. Disc drives in the consumer electronics markets are primarily used in high-capacity solutions,
such as DVRs, that require more storage capability than can be provided in a cost-
effective manner through alternative technologies such as flash
memory, which is used in lower capacity consumer electronics applications. We believe the demand for disc drives in consumer electronics will
become more pronounced with the increased amount of high definition content that requires larger amounts of storage capacity. Although solid
state or flash memory has largely replaced disc drives in handheld applications, we believe that the demand for disc drives to store, hold or back
up related media content from such handheld devices, continues to grow.
Success in the Disc Drive Industry Depends on Technology and Manufacturing Leadership, High Levels of Capital and Research and
Development Investments and Large Scale Operations
The design and manufacturing of disc drives depends on highly advanced technology and manufacturing techniques, especially in the areas
of read/write heads and recording media, thereby requiring high levels of capital and significant research and development investments. Disc
drive manufacturers are distinguished by their level of vertical integration, which is the degree to which they control the technology used in their
products, and by whether they are captive, producing disc drives for their own computer systems, or independent, producing disc drives as a
stand-alone product. Integrated manufacturers are companies that design and produce the critical technologies, including read/write heads and
recording media, used in their disc drives. An integrated approach enables them to lower manufacturing costs and to improve the functionality of
components so that they work together efficiently. In contrast, manufacturers that are not integrated purchase most of their components from
third-party suppliers, upon whom they depend for key elements of their technological innovation and differentiation. This can limit their ability
to coordinate technology roadmaps and optimize the component design process for manufacturing efficiency and product reliability while
making them reliant on the technology investment decisions of their suppliers. Independent manufacturers can enjoy a competitive advantage
over captive manufacturers in working with OEMs because they do not compete with OEMs for computer system sales. We believe the
competitive dynamics of the disc drive industry favor integrated, independent manufacturers with the scale to make substantial technology
investments and apply them across a broad product portfolio and set of customers.
Due to the significant challenges posed by the need to continually innovate and improve manufacturing efficiency and because of the
increasing amounts of capital and research and development investments required, the disc drive industry has undergone significant
consolidation as disc drive manufacturers and component manufacturers merged with other companies or exited the industry. Through such
combinations, disc drive manufacturers have also become increasingly vertically integrated. While recent combinations have limited the
opportunity for additional industry consolidation, the increasing technological challenges, associated levels of investment and competitive
necessity of large-scale operations, may still drive future industry consolidation.
Disc Drive Technology
Overview
All of our disc drive products incorporate certain components, including a head disc assembly and a printed circuit board, which are sealed
inside a rigid base and top cover containing these components in a contamination controlled environment.
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