Western Digital 2003 Annual Report Download - page 22

Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking Statements
This report contains forward-looking statements within the meaning of the federal securities laws. The statements
that are not purely historical should be considered forward-looking statements. Often they can be identiÑed by the use of
forward-looking words, such as ""may,'' ""will,'' ""could,'' ""project,'' ""believe,'' ""anticipate,'' ""expect,'' ""estimate,''
""continue,'' ""potential,'' ""plan,'' ""forecasts,'' and the like. Statements concerning current conditions may also be
forward-looking if they imply a continuation of current conditions.
Forward-looking statements are subject to risks and uncertainties that could cause actual results to diÅer materially
from those expressed in the forward-looking statements. Readers are urged to carefully review the disclosures made by the
Company concerning risks and other factors that may aÅect the Company's business and operating results, including
those made in this report under the caption ""Risk Factors That May AÅect Future Results'' as well as the Company's
other reports Ñled with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation to publish revised forward-looking
statements to reÖect events or circumstances after the date hereof or to reÖect the occurrence of unanticipated events.
Unless otherwise indicated, references herein to speciÑc years and quarters are to the Company's Ñscal years and Ñscal
quarters.
Description of the Business
Western Digital designs, develops, manufactures and markets hard drives for digital information storage. The
Company's hard drives are used in desktop PC's, servers, network attached storage devices and an expanding list of
consumer electronics (""CE'') products such as video game consoles, digital video recorders and satellite and cable set-top
boxes. Western Digital markets its hard drives directly to PC manufacturers, including large, brand name PC
manufacturers such as Dell and HP; to CE manufacturers; and to distributors, resellers and retailers that serve a wide
range of end users. Unless otherwise noted, all references to market share and industry data included in this discussion are
according to the March 2003 report published by TrendFOCUS, the July 2003 report published by International Data
Corporation (""IDC'') and the June 2003 report published by Gartner, Inc. (""Gartner'').
Western Digital builds hard drives in two assembly facilities, one in Malaysia and one in Thailand, procuring
components from industry-leading technology companies that work with the Company from design and development
through manufacturing.
Hard-drive industry dynamics have changed signiÑcantly over the last several years. In calendar year 2002, seven
hard drive vendors competed in the $20 billion-a-year hard drive market, compared to 15 vendors two years ago.
Consolidation in the industry has produced more eÇcient operations, tighter supply chain management, leaner cost
structures and more predictable operating results. According to TrendFOCUS quarterly reports for 2003 and calendar
year 2002, Western Digital, Seagate Technologies, Maxtor Corporation, and Hitachi Global Storage Technologies
(including sales by IBM and Hitachi prior to the formation of the joint venture in 2003) supplied approximately 85% of
the total hard drive market during 2003.
Western Digital believes that its business model allows the Company to beneÑt from leading-edge component
technologies and cost-saving innovations while minimizing investment expenditures. High-eÇciency facilities, lean
staÇng and careful control of costs and working capital enable Western Digital to fund a growing revenue stream without
commensurate operating expenses and to convert substantial portions of incremental revenue into earnings. The Company
focuses on providing quality products, superior customer service and Öexibility by intensively managing the aspects of the
business it can control: technology deployment, manufacturing, cost, delivery, quality and reliability.
Western Digital's growth will be inÖuenced greatly by developments in the PC hard drive market. TrendFOCUS
estimates that desktop PC hard drive shipments totaled approximately 155 million units in calendar year 2002 and that
this market will grow by approximately 6% per year through calendar year 2006. The Company has increased its
resources to address the fast-growing emerging markets of Asia, Latin America and Eastern Europe, where its revenue
grew to 34% of total Company revenue in Ñscal year 2003 from 32% a year earlier. Gartner estimates that demand for
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