Western Digital 2001 Annual Report Download - page 19

the Company for purchase and redistribution of product on a quick turnover basis. Purchase orders are placed
and revised on a weekly basis. The Company grants certain of its distributors price protection and limited
rights to return product on a rotation basis.
Retailers. The Company sells its retail-packaged products directly to a select group of major retailers
such as computer superstores, warehouse clubs and computer electronics stores and authorizes sales through
distributors to smaller retailers. Major retailers to whom the Company sells directly include Best Buy, Circuit
City, CompUSA, OÇce Depot, Vobis and Fry's Electronics. Retailers accounted for approximately 6%, 5%
and 6% of revenue for 1999, 2000 and 2001, respectively. The Company's current retail customer base is
primarily in the United States, Canada and Europe. The retail channel complements the Company's other
sales channels while helping to build brand awareness for the Company and its products. Retailers supply the
aftermarket ""upgrade'' sector in which end-users purchase and install products to upgrade their computers.
The Company grants certain of its retailers price protection and limited rights to return product on a rotation
basis. The Company also sells its retail-packaged products through the Internet, at its website,
http://www.westerndigital.com.
The Company maintains sales oÇces throughout North America, Eastern and Western Europe, the
Middle East, Japan and Southeast Asia. Field application engineering is provided to strategic computer
manufacturer accounts, and end-user technical support services are provided within the United States and
Europe. The Company's end-user technical support is supplied by both employees and qualiÑed third-party
support organizations through telephone support during business hours and via the Company's website.
The Company's international sales, which include sales to foreign subsidiaries of U.S. companies,
represented 45%, 53% and 41% of revenues for Ñscal years 1999, 2000 and 2001, respectively. Sales to
international customers may be subject to certain risks not normally encountered in domestic operations,
including exposure to tariÅs, various trade regulations and Öuctuations in currency exchange rates. See Part II,
Item 7, under the heading ""Risk factors relating to Western Digital particularly.''
For information concerning revenue recognition, sales by geographic region and signiÑcant customer
information, see Notes 1 and 9, respectively, of Notes to Consolidated Financial Statements.
The Company's marketing and advertising functions are performed both internally and through outside
Ñrms. Advertising, direct marketing, worldwide packaging and marketing materials are targeted to various
end-user segments. Western Digital utilizes both consumer media and trade publications. The Company has
programs under which qualifying manufacturers and resellers are reimbursed for certain advertising expendi-
tures. Western Digital also invests in direct marketing and customer satisfaction programs. The Company
maintains ongoing contact with end users through primary and secondary market research, focus groups,
product registrations and technical support databases.
Competition
In the desktop hard drive market, the Company has competed primarily with Fujitsu, IBM, Maxtor,
Quantum, Samsung and Seagate. During the last year, Maxtor acquired the hard drive business of Quantum
and, recently, Fujitsu announced that it would exit the desktop hard drive market, decreasing the number of
major competitors.
The hard drive industry is intensely competitive, with hard drive suppliers competing for a limited
number of major customers. Hard drives manufactured by diÅerent competitors are highly substitutable due
to the industry mandate of technical form, Ñt and function standards. Hard drive manufacturers compete on
the basis of product quality and reliability, storage capacity, unit price, product performance, production
volume capabilities, delivery capability, leadership in time-to-market, time-to-volume and time-to-quality and
ease of doing business. The relative importance of these factors varies among diÅerent customer and market
segments. The Company believes that it is generally competitive in all of these factors.
The Company believes that it cannot diÅerentiate its hard drive products solely on attributes such as
storage capacity; therefore, the Company also diÅerentiates itself by designing and incorporating into its hard
drives desirable product performance attributes and by emphasizing rapid response with its computer
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