Seagate 2014 Annual Report Download - page 26

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TableofContents
resultsderivedfromourcustomers'increasedsalesofdesktopcomputers,notebookcomputers,andconsumerelectronicsduringtheback-to-schoolandwinter
holidayseason.Intheenterprisemarketoursalesareseasonalbecauseofthecapitalbudgetingandpurchasingcyclesofourendusers.Sinceourworkingcapital
needspeakduringperiodsinwhichweareincreasingproductioninanticipationofordersthathavenotyetbeenreceived,ourresultsofoperationswillfluctuate
seasonallyeveniftheforecasteddemandforourproductsprovesaccurate.Furthermore,itisdifficultforustoevaluatethedegreetowhichthisseasonalitymay
affectourbusinessinfutureperiodsbecauseoftherateandunpredictabilityofproducttransitionsandnewproductintroductions,particularlyintheclientnon-
computemarket,aswellasmacroeconomicconditions.
Wehavealongandunpredictablesalescycleforenterprisedatastoragesolutions.
Ourenterprisedatastoragesolutionsaretechnicallycomplexandwetypicallysupplytheminhighquantitiestoasmallnumberofcustomers.Manyofour
productsarealsotailoredtomeetthespecificrequirementsofindividualcustomers,andareoftenintegratedbyourcustomersintothesystemsandproductsthat
theysell.Factorsthataffectthelengthofoursalescycleinclude:
•thetimerequiredfortestingandevaluatingourproductsbeforetheyaredeployed;
•thesizeofthedeployment;and
•thedegreeofsystemconfigurationnecessarytodeployourproducts.
Asaresult,oursalescycleforenterprisedatastoragesolutionsisofteninexcessofoneyear,andthelengthofoursalescycleisfrequentlyunpredictable.In
addition,theemergingandevolvingnatureofthemarketfortheproductsthatwesellmayleadprospectivecustomerstopostponetheirpurchasingdecisions.We
investresourcesandincurcostsduringthiscyclethatmaynotberecoveredifwedonotsuccessfullyconcludesales.Thesefactorsleadtodifficultyinmatching
revenueswithexpenses,andtoincreasedexpenditureswhichtogethermayadverselyimpactourresultsofoperations.
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.
Webelievethatindustrydemandforstorageproductsinthelong-termisincreasingduetotheproliferationofmedia-richdigitalcontentinconsumer
applicationsandisfuelingincreasedconsumerdemandforstorage.Thishasledtotheexpansionofourbrandedsolutionssuchasexternalstorageproductsto
provideadditionalstoragecapacityandtosecuredataincaseofdisasterorsystemfailure,ortoprovideindependentstoragesolutionsformultipleusersinhomeor
smallbusinessenvironments.Consumerspendingonretailsalesofourbrandedsolutionshasdeterioratedinsomemarketsandmaycontinuetodosoifpoorglobal
economicconditionscontinueandhigherlevelsofunemploymentpersist.
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