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TableofContents
ResearchandDevelopment
Wearecommittedtodevelopingnewcomponenttechnologies,productsandalternativestoragetechnologies.Ourresearchanddevelopmentfocusisdesigned
tobringnewproductstomarketinhighvolume,withqualityattributesthatourcustomersexpect,beforeourcompetitors.Partofourproductdevelopmentstrategy
istoleverageadesignplatformand/orsubsystemwithinproductfamiliestoservedifferentmarketneeds.Thisplatformstrategyallowsformoreefficientresource
utilization,leveragesbestdesignpractices,reducesexposuretochangesindemand,andallowsforachievementoflowercoststhroughpurchasingeconomies.Our
advancedtechnologyintegrationeffortfocusesdiskdriveandcomponentresearchonrecordingsubsystems,includingread/writeheadsandrecordingmedia;
market-specificproducttechnology;andtechnologyfocusedtowardsnewbusinessopportunities.Theprimarypurposeofouradvancedtechnologyintegration
effortistoensuretimelyavailabilityofmaturecomponenttechnologiestoourproductdevelopmentteamsaswellasallowingustoleverageandcoordinatethose
technologiesinthedesigncentersacrossourproductsinordertotakeadvantageofopportunitiesinthemarketplace.Duringfiscalyears2016,2015and2014,we
hadproductdevelopmentexpensesofapproximately$1,237million,$1,353millionand$1,226million,respectively,whichrepresented11%,10%and9%ofour
consolidatedrevenue,respectively.
PatentsandLicenses
AsofJuly1,2016,wehadapproximately5,000U.S.patentsand1,300patentsissuedinvariousforeignjurisdictionsaswellasapproximately1,500U.S.and
1,200foreignpatentapplicationspending.Thenumberofpatentsandpatentapplicationswillvaryatanygiventimeaspartofourongoingpatentportfolio
managementactivity.Duetotherapidtechnologicalchangethatcharacterizestheelectronicdatastorageindustry,webelievethat,inadditiontopatentprotection,
theimprovementofexistingproducts,relianceupontradesecrets,protectionofunpatentedproprietaryknow-howanddevelopmentofnewproductsarealso
importanttoourbusinessinestablishingandmaintainingacompetitiveadvantage.Accordingly,weintendtocontinueoureffortstobroadlyprotectourintellectual
property,includingobtainingpatents,whereavailable,inconnectionwithourresearchanddevelopmentprogram.
Wehavepatentlicenseswithanumberofcompanies.Additionally,aspartofournormalintellectualpropertypractices,wemaybeengagedinnegotiations
withothermajorelectronicdatastoragecompaniesandcomponentmanufacturerswithrespecttopatentlicenses.
Theelectronicdatastorageindustryischaracterizedbysignificantlitigationrelatingtopatentandotherintellectualpropertyrights.Becauseofrapid
technologicaldevelopmentintheelectronicdatastorageindustry,someofourproductshavebeen,andinthefuturecouldbe,allegedtoinfringeexistingpatentsof
thirdparties.Fromtimetotime,wereceiveclaimsthatourproductsinfringepatentsofthirdparties.Althoughwehavebeenabletoresolvesomeofthoseclaimsor
potentialclaimsbyobtaininglicensesorrightsunderthepatentsinquestionwithoutamaterialadverseaffectonus,otherclaimshaveresultedinadversedecisions
orsettlements.Inaddition,otherclaimsarepending,whichifresolvedunfavorablytouscouldhaveamaterialadverseeffectonourbusinessandresultsof
operations.Formoreinformationontheseclaims,see"Item8.FinancialStatementsandSupplementaryData—Note14.Legal,EnvironmentalandOther
Contingencies."Thecostsofengaginginintellectualpropertylitigationinthepasthavebeen,andinthefuturemaybe,substantial,irrespectiveofthemeritsofthe
claimortheoutcome.
Backlog
Inviewofindustrypractice,wherebycustomersmaycancelordeferorderswithlittleornopenalty,webelievebackloginthediskdriveindustryisoflimited
indicativevalueinestimatingfutureperformanceandresults.
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