Western Digital 2001 Annual Report Download - page 22

Some custom integrated circuits are currently sole-sourced from STMicroelectronics. Because of their
custom nature, these products require signiÑcant design-in periods and long lead times. There has been a trend
in integrated circuit design toward increased integration of various separate circuits. The Company expects
this trend to continue in the area of custom integrated circuits for hard drives.
For an additional discussion of component supplies, see Part II, Item 7, under the heading ""Risk factors
relating to Western Digital particularly.''
Backlog
At August 24, 2001, the Company's backlog, consisting of orders scheduled for delivery within the next
twelve months, was approximately $287 million, compared with a backlog at September 18, 2000 of
approximately $294 million. The Company expects this entire backlog to be delivered within the current Ñscal
year. Historically, a substantial portion of the Company's orders has been for shipments within 30 to 60 days of
the placement of the order. The Company generally negotiates pricing, order lead times, product support
requirements and other terms and conditions prior to receiving a computer manufacturer's Ñrst purchase order
for a product. Manufacturers' purchase orders typically may be canceled with relatively short notice to the
Company, with little or no cost to the customer, or modiÑed by customers to provide for delivery at a later
date. Also, certain of the Company's sales to computer manufacturers are made under ""just-in-time'' delivery
contracts that do not generally require Ñrm order commitments by the customer until the time of sale.
Therefore, backlog information as of the end of a particular period is not necessarily indicative of future levels
of the Company's revenue and proÑt and may not be comparable to earlier periods.
Patents, Licenses and Proprietary Information
The Company owns numerous patents and has many patent applications in process. The Company
believes that, although its patents and patent applications have signiÑcant value, the successful manufacturing
and marketing of its products depends primarily upon the technical competence and creative ability of its
personnel. Accordingly, the patents held and applied for do not assure the Company's future success.
In addition to patent protection of certain intellectual property rights, the Company considers elements of
its product designs and processes to be proprietary and conÑdential. The Company believes that its
nonpatented intellectual property, particularly some of its process technology, is an important factor in its
success. Western Digital relies upon employee, consultant, and vendor non-disclosure agreements and a
system of internal safeguards to protect its proprietary information. Despite these safeguards, there is a risk
that competitors may obtain and use such information. The laws of foreign jurisdictions in which the Company
does business also may provide less protection for conÑdential information than the United States.
The Company relies on certain technology that is licensed from other parties in order to manufacture and
sell its products. The Company has cross-licensing agreements with several competitors, customers and
suppliers, and the Company believes that it has adequate licenses and other agreements in place in addition to
its own intellectual property portfolio to compete successfully in the hard drive industry.
For additional discussion of intellectual property, see Part II, Item 7, under the heading ""Risk factors
relating to Western Digital particularly.''
Environmental Regulation
The Company is subject to a variety of regulations in connection with its operations. It believes that it has
obtained or is in the process of obtaining all necessary permits for its domestic operations.
Employees
As of June 29, 2001, the Company employed a total of 7,909 full-time employees worldwide. This
represents an increase in headcount of approximately 8% since June 30, 2000 and a reduction of approximately
25% since July 3, 1999, as the Company responded to the industry downturn and its decrease in sales by
restructuring its hard drive business during 1999 and 2000. The Company employed 1,174 employees in the
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