Seagate 2012 Annual Report Download - page 25

Table of Contents
performance ruggedness have resulted in flash memory largely replacing disk drives in handheld applications. We believe that the demand for
disk drives to store or back up related media content from such handheld devices, however, continues to grow. While this competition has
traditionally been limited to the markets for handheld consumer electronics applications, these competitors have announced SSDs for tablet,
notebook and enterprise compute applications.
If we do not suitably adapt our product offerings to successfully introduce additional smaller form factor disk drives or alternative storage
products based on flash storage technology, or if our competitors are successful in achieving customer acceptance of SSD products for tablet,
notebook and enterprise compute applications, then our customers may decrease the amounts of our products that they purchase, which would
adversely affect our results of operations.
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. Many of such component suppliers are geographically concentrated, in particular, in Thailand, which makes our supply chain more
vulnerable to regional disruptions such as the recent flooding in Thailand, which has had a material impact on the production and availability of
many components. 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 could experience a shortage in supply or an increase in
production costs, which would adversely affect our results of operations.
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;
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