Seagate 2009 Annual Report Download - page 26

Table of Contents
Dependence on Supply of Components, Equipment and Raw Materials
—If we experience shortages or delays in the receipt of, or cost
increases in, 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 supply of components, certain equipment and raw materials used to manufacture disk 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 disk 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 that we do not
manufacture, including aluminum and glass substrates, read/write heads, ASICs, spindle motors, printed circuit boards, and suspension
assemblies. If our vendors for these components are unable to meet our cost, quality, and supply requirements, we could experience a shortage in
supply or an increase in production costs, which would adversely affect our results of operations.
In addition, the recent increases in demand for small form factor mobile products have led to shortages in glass substrates, a component
used in smaller form factor disk drives to make the recording media for such drives. If our vendors for glass substrates are unable to meet our
demand, or are unable to invest sufficient capital to expand capacity to meet the industry's increasing unit growth in small form factor mobile
disk drives, we could experience a shortage in the supply of this critical component, which could limit our ability to meet our customer's demand
for smaller form factor disk drives.
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 make volume purchase commitments or advance
deposits for some components, equipment or raw materials that were in short supply in the industry in general.
Consolidation among component manufacturers may result in some component manufacturers exiting the industry or not making sufficient
investments in research to develop new components.
If there is a shortage of, or delay in supplying us with, critical components, equipment or raw materials, then:
•
it is likely that our suppliers would raise their prices and, if we could not pass these price increases to our customers, our
operating margin would decline;
•
we might have to reengineer some products, which would likely cause production and shipment delays, make the reengineered
products more costly and provide us with a lower rate of return on these products;
• we would likely have to allocate the components we receive to certain of our products and ship less of others, which could reduce
our revenues and could cause us to lose sales to customers who could purchase more of their required products from
manufacturers that either did not experience these shortages or delays or that made different allocations; and
• we might be late in shipping products, causing potential customers to make purchases from our competitors, thus causing our
revenue and operating margin to decline.
We cannot assure you that we will be able to obtain critical components in a timely and economic manner.
24