Seagate 2014 Annual Report Download - page 48

TableofContents
demandthatdonotmaterialize,priceerosionmaybecomemorepronounced.Conversely,duringperiodswheredemandexceedssupply,priceerosionisgenerally
muted.
PriceErosion.
Historically,ourindustryhasbeencharacterizedbypricedeclinesfordiskdriveproductswithcomparablecapacity,performanceandfeaturesets("like-for-
likeproducts").Pricedeclinesforlike-for-likeproducts("priceerosion")havebeenmorepronouncedduringperiodsof:
•economiccontractioninwhichcompetitorsmayusediscountedpricingtoattempttomaintainorgainmarketshare;
•fewnewproductintroductionswhencompetitorshavecomparableoralternativeproductofferings;and
•industrysupplyexceedingdemand.
Diskdrivemanufacturerstypicallyattempttooffsetpriceerosionwithanimprovedmixofdiskdriveproductscharacterizedbyhighercapacity,better
performanceandadditionalfeaturesetsand/orproductcostreductions.
WebelievetheHDDindustryexperiencedbenignpriceerosioninfiscalyears2013,2014andmoderatepriceerosioninfiscalyear2015.
ProductLifeCyclesandChangingTechnology.Successinourindustryhasbeendependenttoalargeextentontheabilitytobalancetheintroductionand
transitionofnewproductswithtime-to-volume,performance,capacityandqualitymetricsatacompetitiveprice,levelofserviceandsupportthatourcustomers
expect.Generally,thedrivemanufacturerthatintroducesanewproductfirstbenefitsfromimprovedproductmix,favorableprofitmarginsandlesspricing
pressureuntilcomparableproductsareintroduced.Changingtechnologyalsonecessitateson-goinginvestmentsinresearchanddevelopment,whichmaybe
difficulttorecoverduetorapidproductlifecyclesandeconomicdeclines.Further,thereisacontinuedneedtosuccessfullyexecuteproducttransitionsandnew
productintroductions,asfactorssuchasquality,reliabilityandmanufacturingyieldscontinuetobeofsignificantcompetitiveimportance.
Seasonality
Thediskdriveindustrytraditionallyexperiencesseasonalvariabilityindemandwithhigherlevelsofdemandinthesecondhalfofthecalendaryear.This
seasonalityisdrivenbyconsumerspendingintheback-to-schoolseasonfromlatesummertofallandthetraditionalholidayshoppingseasonfromfalltowinter.In
fiscalyears2013and2014,ourindustryexperiencedmutedseasonalpatternsassupplyanddemandwererelativelyinbalance.However,webelievefiscalyear
2015reflectedaseasonalpatternconsistentwithhistoricalpatterns.
FiscalYear2015Summary
Duringthefiscalyear2015,weshipped212millionunitstotaling228exabytes,generatingrevenueof$13.7billionandgrossmarginsof28%ofrevenue.Our
operatingcashflowwas$2.6billion,whichincluded$773millionreceivedfromWesternDigitalaspartialpaymentofthefinalawardplusaccruedinterestinour
arbitrationcaseagainstWesternDigitalanda$225millionpaymentrelatedtothefinalauditassessmentreceivedfromtheJiangsuProvinceStateTaxBureauof
thePeople'sRepublicofChinafortaxandinterestassociatedwithchangestoourtaxfilingsforthecalendaryears2007through2013.Weissued$500millionof
5.75%SeniorNotesdue2034and$700millionof4.875%SeniorNotesdue2027duringtheDecember2014andJune2015quarters,respectively.Werepurchased
approximately19millionofourordinarysharesduringtheyearforapproximately$1.1billion,paid$0.9billionfortheearlyrepurchaseandredemptionofdebt,
paiddividendsduringtheyearof$0.7billion,andcompletedour
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