Seagate 2010 Annual Report Download - page 25

Table of Contents
• our inability to reduce our fixed costs to match sales in any quarter because of our vertical manufacturing strategy, which means
that we make more capital investments than we would if we were not vertically integrated;
• dependence on our ability to successfully qualify, manufacture and sell in increasing volumes on a cost-effective basis and with
acceptable quality our disk drive products, particularly the new disk drive products with lower cost structures;
•
variations in the cost of components for our products, especially during periods when the U.S. dollar is relatively volatile as
compared to other currencies;
•
uncertainty in the amount of purchases from our distributor customers who from time to time constitute a large portion of our total
sales;
• our product mix and the related margins of the various products;
• accelerated reduction in the price of our disk drives due to technological advances and/or an oversupply of disk drives in the
market and shifting trends in demand which can create supply and demand imbalances;
•
manufacturing delays or interruptions, particularly at our manufacturing facilities in China, Malaysia, Northern Ireland,
Singapore, Thailand or the United States;
•
limited access to components that we obtain from a single or a limited number of suppliers;
•
the impact of changes in foreign currency exchange rates on the cost of producing our products and the effective price of our
products to foreign consumers; and
• operational issues arising out of the increasingly automated nature of our manufacturing processes.
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.
Certain rare earth elements are critical in the manufacture of our products. We purchase components that contain rare earth elements from a
number of countries, including the People's Republic of China. We cannot predict whether any nation will impose regulations, quotas or
embargoes upon the rare earth elements incorporated into our products that would restrict the worldwide supply of such metals or increase their
cost. 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. If any major supplier were to restrict the supply
available to us or increase the cost of the rare earth elements used in our products, we
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