Western Digital 1999 Annual Report Download - page 10

Bowne Conversion 5
PART I
Item 1. Business
General
Western Digital Corporation (the "Company" or "Western Digital") designs, develops, manufactures and markets a broad line of
hard drives featuring leading-edge technology. A hard drive is a storage device found in most computers that stores data on one or
more rotating magnetic disks that provide fast access to data that must be readily available to computer users. The Company's hard
drives are designed for the desktop PC market and the high-end hard drive market and, recently, for the emerging market for hard drives
specially designed for audio-visual applications, such as new video recording devices. The Company's hard drive products currently
include 3.5-inch form factor hard drives ranging in storage capacity from 4.3 gigabytes ("GB") to 27.3 GB. The Company sells its
products worldwide to computer manufacturers for inclusion in their computer systems or subsystems and to distributors, resellers and
retailers. The Company's products are currently manufactured in Singapore and Malaysia.
In February 1999, the Company acquired Crag Technologies, Inc., renamed Connex, Inc. ("Connex") after the acquisition, a San
Jose-based startup company formed to develop storage solutions for the Windows NT and UNIX server environments for the rapidly
changing storage market. Connex's first product is expected to be a network attached storage appliance targeted at workgroups and
small departments where multiple users access shared data files over a local area network. Connex is developing a network attached
storage appliance featuring a fully integrated controller, up to six hard drives, an integrated tape for backup, automatic connectivity for
remote management, and plug-and-play installation capability. The system will include Connex's Perspective™ storage management
software. For further discussion of Connex, see Part II, Item 7, under the heading "Risk factors relating to Western Digital particularly."
Industry
Desktop PC Market. According to International Data Corporation, the desktop computer segment is the largest segment of the
worldwide personal computer market, accounting for approximately 80% of global personal computer shipments in calendar 1998. As a
result, desktop computers were the leading source of demand for hard drives, accounting for more than 75% of all hard drive units
shipped worldwide in calendar 1998, according to International Data Corporation. Over 90% of Western Digital's hard drive unit
shipments in 1999 were sold to this market. Desktop personal computers for entry level to experienced users are used in both
commercial and consumer environments. The demand for hard drive capacity continues to grow in part due to:
•continued improvements in desktop computing price to performance ratios;
•the emergence of the sub-$1,000 desktop computer;
•the rapid accumulation of data resulting from the digitization of information previously stored in paper form;
•larger file sizes created by multimedia-intensive applications;
•the exchange of increasing volumes of data among users across the Internet and intranets with the proliferation of collaborative
computing; and
•increased demand for desktop computer upgrades as a result of Year 2000 compliance efforts.
Future demand growth for desktop computer hard drives also may be driven by new and emerging hard drive markets. In July 1999,
International Data Corporation forecasted that the worldwide desktop computer hard drive market would grow from approximately 111
million units in calendar 1998 to 205 million units in calendar 2003, reflecting a compound annual growth rate of approximately 13.1%.
However, it forecasts that revenue growth will only be approximately 4.4% through calendar 2003, reflecting the impact of industry
oversupply and severe price competition. See Part II, Item 7, under the heading "Risk factors related to the hard drive industry in which
we operate."