Seagate 2015 Annual Report Download - page 49

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TableofContents
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productcostreductions.
WebelievetheHDDindustryexperiencedbenignpriceerosioninfiscalyear2014,whereaspriceerosionincreasedinfiscalyears2015and2016.
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.
Webelievefiscalyear2015reflectedseasonalityconsistentwithhistoricalpatterns,whereasinfiscalyear2014ourindustryexperiencedmoremutedseasonal
patternsassupplyanddemandwererelativelyinbalance.Infiscalyear2016,beyondtraditionalseasonality,variabilityofsaleswasareflectionofmorecyclical
demandfromCSPsbasedonthetimingoflargesystemsinstallationsandtheshiftoftheunderlyingtechnology.
FiscalYear2016Summary
Duringthefiscalyear2016,weshipped169millionunitstotaling233exabytes,generatingrevenueof$11.2billionandgrossmarginsof23%ofrevenue.Our
operatingcashflowwas$1.7billion.Werepurchasedapproximately24millionofourordinarysharesduringtheyearforapproximately$1.1billion,paid
dividendsduringtheyearof$727million,andcompletedouracquisitionofDotHillSystemsCorp.("DotHill"),asupplierofsoftwareandhardwarestorage
systemsfor$674millionincash.
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