Seagate 2012 Annual Report Download - page 27

Table of Contents
Additional causes of declines in demand for our products in the past have included announcements or introductions of major new operating
systems or semiconductor improvements or changes in consumer preferences, such as the shift to mobile devices. We believe these
announcements and introductions have from time to time caused consumers to defer their purchases and made inventory obsolete. Whenever an
oversupply of disk drives causes participants in our industry to have higher than anticipated inventory levels, we experience even more intense
price competition from other disk drive manufacturers than usual.
Dependence on Distributors
—We are dependent on sales to distributors and retailers, which may increase price erosion and the volatility of
our sales.
A substantial portion of our sales has been to distributors of disk drive products. Certain of our distributors may also market other products
that compete with our products. Product qualification programs in this distribution channel are limited, which increases the number of competing
products that are available to satisfy demand, particularly in times of lengthening product cycles. As a result, purchasing decisions in this
channel are based largely on price, terms and product availability. Sales volumes through this channel are also less predictable and subject to
greater volatility than sales to our OEM customers. In addition, deterioration in business and economic conditions could exacerbate price erosion
and volatility as distributors lower prices to compensate for lower demand and higher inventory levels. Our distributors' ability to access credit
for purposes of funding their operations may also affect purchases of our products by these customers.
If distributors reduce their purchases of our products or prices decline significantly in the distribution channel or if distributors experience
financial difficulties or terminate their relationships with us, our revenues and results of operations would be adversely affected.
Dependence on Key Customers
—We may be adversely affected by the loss of, or reduced, delayed or cancelled purchases by, one or more of
our larger customers.
Some of our key customers account for a large portion of our disk drive revenue. While we have longstanding relationships with many of
our customers, if any of our key customers were to significantly reduce their purchases from us, our results of operations would be adversely
affected. While sales to major customers may vary from period to period, a major customer that permanently discontinues or significantly
reduces its relationship with us could be difficult to replace. In line with industry practice, new customers usually require that we pass a lengthy
and rigorous qualification process at the customer's cost. Accordingly, it may be difficult or costly for us to attract new major customers.
Additionally, mergers, acquisitions, consolidations or other significant transactions involving our customers generally entail risks to our
business. If a significant transaction involving any of our key customers results in the loss of or reduction in purchases by these key customers, it
could have a materially adverse effect on our business, results of operations, financial condition and prospects.
Dependence on Sales of Disk Drives in Client Non
-Compute Applications—Our sales of disk drives for client non-compute applications,
which have contributed significant revenues to our results, can experience significant volatility due to seasonal and other factors, which
could materially adversely impact our future results of operations.
Sales of disk drives for client non-compute applications have contributed significant revenues to our results. Consumer spending on client
non-compute has, and may continue to, deteriorate in many countries and regions, due to poor global economic conditions and high levels of
unemployment. This could have a material adverse effect on demand for our products and services and on our financial condition and results of
operations.
In addition, the demand for client non-compute products can be even more volatile and unpredictable than the demand for client compute
products. In some cases, our products manufactured for client non-compute applications are uniquely configured for a single customer's
application, which creates a risk
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