Western Digital 2003 Annual Report Download - page 29

history in the related tax jurisdictions. Should this determination change in the future, some amount of deferred tax assets
could be recognized, resulting in a tax beneÑt or a reduction of future tax expense.
Risk Factors That May AÅect Future Results
Our operating results depend on optimizing time-to-market and time-to-volume, overall quality of new technologies and costs
of new and established products.
To achieve consistent success with computer manufacturer customers, we must balance four key attributes: time-to-
market, time-to-volume, quality and cost. If we fail to:
‚ maintain overall quality of products on new and established programs,
‚ maintain competitive cost structures on new and established products,
‚produce suÇcient quantities of products at the capacities our customers demand while managing the integration
of new and established technologies,
‚qualify new products that have changes in overall speciÑcations or features that our customers may require for
their business needs,
‚qualify these products with key customers on a timely basis by meeting all of our customers' needs for
performance, quality and features, or
‚ consistently meet stated quality requirements on delivered products,
our operating results would be adversely aÅected.
Product life cycles require continuous technical innovation associated with higher areal densities.
New products may require higher areal densities (the gigabyte of storage per disk) than previous product
generations, posing formidable technical challenges. Higher areal densities require fewer heads and disks to achieve a
given drive capacity, which means that existing head technology must be improved or new technology developed to
accommodate more data on a single disk. In addition, our introduction of new products during a technology transition
increases the likelihood of unexpected quality concerns. Our failure to bring high quality new products to market on time
and at acceptable costs would put us at a competitive disadvantage to companies that achieve these results.
Increases in areal density may outpace customers' demand for storage capacity.
The rate of increase in areal density may be greater than the increase in our customers' demand for aggregate storage
capacity. This could lead to our customers' storage capacity needs being satisÑed with more lower-cost single-surface
drives, thereby decreasing our revenue. As a result, even with increasing aggregate demand for storage capacity, our ASP's
could decline, which could adversely aÅect our results of operations.
Short product life cycles make it diÇcult to recover the cost of development.
Product life cycles have extended during the past twelve months due to a decrease in the rate of hard drive areal
density growth. However, there can be no assurance that this trend will continue. Historically, more rapid increases in
areal density resulted in shorter product life cycles, with each generation of hard drives being more cost eÇcient than the
previous one. Shorter product life cycles makes it more diÇcult to recover the cost of product development before the
product becomes obsolete. Although we believe that the current rate of growth in areal density is lower than in the past
several years and will continue to decrease in the near term, we expect that areal density will continue to increase. Our
failure to recover the cost of product development in the future could adversely aÅect our operating results.
Increasing product life cycles may require us to reduce our costs to remain competitive.
Longer product life cycles have resulted from a decrease in the rate of areal density growth in the past twelve
months. If longer product life cycles continue, we may need to develop new technologies or programs, such as system-on-
a-chip, to reduce our costs on any particular product in order to maintain competitive pricing for such product. This may
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