Western Digital 2000 Annual Report Download - page 29

Download and view the complete annual report

Please find page 29 of the 2000 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 78

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78

The hard drive industry is highly competitive and characterized by rapid shifts in market share among the
major competitors.
The price of hard drives has fallen over time due to increases in supply, cost reductions, technological
advances and price reductions by competitors seeking to liquidate excess inventories or gain market share. In
addition, rapid technological changes often reduce the volume and proÑtability of sales of existing products
and increase the risk of inventory obsolescence. These factors, taken together, result in signiÑcant and rapid
shifts in market share among the industry's major participants. For example, during 1998 and 1999, we lost
signiÑcant share of the desktop market. During the Ñrst quarter of 2000, the Company lost market share as a
result of a previously announced product recall; however, we recovered some market share during the
remainder of 2000, but our share is still signiÑcantly below its 1997 level.
Our prices and margins are subject to declines due to unpredictable end-user demand and oversupply of
hard disk drives.
Demand for our hard drives depends on the demand for computer systems manufactured by our
customers and on storage upgrades to existing systems. The demand for computer systems has been volatile in
the past and often has had an exaggerated eÅect on the demand for hard drives in any given period. As a
result, the hard drive market tends to experience periods of excess capacity which typically lead to intense
price competition. If intense price competition occurs, we may be forced to lower prices sooner and more than
expected and transition to new products sooner than expected.
Changes in the markets for hard drives require us to develop new products.
Over the past few years the consumer market for desktop computers has shifted signiÑcantly towards
lower priced systems, especially those systems priced below $1,000. We were late to market with a value line
hard drive to serve that market, and we lost market share. If we are not able to oÅer a competitively priced
value line hard drive for the low-cost PC market our market share will likely fall, which could harm our
operating results.
The PC market is fragmenting into a variety of computing devices and products. Some of these products,
such as Internet appliances, may not contain a hard drive. On the other hand, many industry analysts expect,
as do we, that as broadcasting and communications are increasingly converted to digital technology from the
older, analog technology, the technology of computers and consumer electronics and communication devices
will converge, and hard drives will be found in many consumer products other than computers. If we are not
successful in using our hard drive technology and expertise to develop new products for these emerging
markets, it will likely harm our operating results.
We depend on our key personnel.
Our success depends upon the continued contributions of our key employees, many of whom would be
extremely diÇcult to replace. Worldwide competition for skilled employees in the hard drive industry is
intense. We have lost a number of experienced hard drive engineers over the past two years as a result of the
loss of retention value of their employee stock options (because of the decrease in price of our common stock)
and aggressive recruiting of our employees. If we are unable to retain our existing employees or hire and
integrate new employees, our operating results would likely be harmed.
Risk factors relating to Western Digital particularly
Loss of market share with a key customer could harm our operating results.
A majority of our revenue comes from a few customers. For example, during 2000, sales to our top 10
customers accounted for approximately 57% of revenues. These customers have a wide variety of suppliers to
choose from and therefore can make substantial demands on us. Even if we successfully qualify a product with
a customer, the customer generally is not obligated to purchase any minimum volume of products from us and
is able to terminate its relationship with us at any time. Our ability to maintain strong relationships with our
24