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PART I
Item 1. Business
General
Western Digital Corporation (the ""Company'' or ""Western Digital'') designs, develops, manufactures
and markets 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 users of computers or other devices. The Company's hard drives are designed for the
desktop PC market and for the emerging market for hard drives specially designed for digital audio-visual
applications, such as new digital video recording devices, digital cable set-top boxes, satellite television boxes,
audio/visual juke boxes and video game devices. The Company's hard drive products currently include
3.5-inch form factor hard drives ranging in storage capacity from 7.5 gigabytes (""GB'') to 45.0 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
Malaysia. In January 2000, the Company announced its decision to exit the market for hard drives
manufactured for enterprise computer systems and closed its Rochester, Minnesota enterprise hard drive
design center.
The Company continuously evaluates opportunities to extend its data storage product oÅerings and to
expand beyond the traditional market for hard drives into new markets which meet certain predeÑned criteria.
The Company considers new or high growth markets for data or content storage, management, and
communication which have few entrenched competitors and oÅer the prospect of a sustained competitive
advantage through unique or proprietary technology. In February 1999, the Company acquired Connex, Inc.
(""Connex''), 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 Ñrst product, the ""N3000‚'' is a
network attached storage (""NAS'') appliance targeted at workgroups and small departments where multiple
users access shared data Ñles over a local area network. Connex has also developed a suite of software products
for the management of a storage area network (""SAN''). For further discussion of Connex, see under the
heading ""Products Ì Products Developed by Connex'', and see Part II, Item 7, under the heading ""Risk
factors relating to Western Digital particularly.''
In February 2000, the Company contributed the assets comprising its emerging business in analytical
software for data warehouses to a newly formed subsidiary, SageTree, Inc. (""SageTree''). The Company
formed this subsidiary in anticipation of the possibility of obtaining Ñnancing from outside the Company for
the operation and development of this emerging business. In June 2000, SageTree received a direct investment
from NCR Corporation in exchange for a minority interest in SageTree. SageTree has expanded the
functionality of its software and now oÅers SageQuest‚, a software package for enterprise-wide supply chain
management, product lifecycle management and decision support in the manufacturing industry. For further
discussion of SageTree, see Part II, Item 7, under the heading ""Risk factors relating to Western Digital
particularly.''
The Company will monitor the development of new markets related to data or content storage and
storage management, and communication of digital content and network intelligence, and may from time to
time oÅer new products or services to address appropriate new markets.
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 78% of global
personal computer shipments in calendar 1999. As a result, desktop computers were the leading source of
demand for hard drives, accounting for more than 70% of all hard drive units shipped worldwide in calendar
1999, according to International Data Corporation. Over 90% of Western Digital's hard drive unit shipments
in 2000 were sold to this market. Desktop personal computers for entry level to experienced users are used in
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