Western Digital 2003 Annual Report Download - page 33

competitors succeed in doing so or have access to external sources of supply that incorporate such new technologies, our
business and Ñnancial results could suÅer.
If we are unable to successfully integrate the assets of Read-Rite Corporation into our business in a timely manner, our
business and Ñnancial results could be adversely aÅected.
In July 2003, we acquired the assets of Read-Rite Corporation, formerly one of our suppliers of heads, and we are in
the process of integrating the acquired assets into our company. We may not successfully address the integration
challenges in a timely manner, or at all. Integration requires varying levels of management resources, which may divert
our attention from other business operations. It may be diÇcult for us to successfully integrate the assets, products,
technologies or personnel of Read-Rite, which could materially and adversely aÅect our business, Ñnancial condition and
results of operations.
In connection with our acquisition of Read-Rite's assets, we will experience additional costs and risks.
Our acquisition of Read-Rite's assets represents a fundamental change in our operating structure, as we are now
manufacturing heads for use in the hard drives we manufacture. Due to the vertical integration of part of our supply
chain, we carry a higher percentage of Ñxed costs than traditionally assumed in our overall business model. If the overall
level of production decreases for any reason, the acquired assets may face under-utilization that may impact our results of
operations. We are therefore subject to additional risks related to overall asset utilization, including:
‚ the need to operate at high levels of utilization to drive competitive costs;
‚the greater need for predictability of quarterly production to ensure best utilization of assets to drive competitive
costs; and
‚the need for assured supply of components, especially hard drive media, that is optimized to work with our
heads.
Moreover, capital expenditures and working capital investments required to operate Read-Rite's assets will utilize
additional cash. For example, while the purchased assets of Read-Rite, including intellectual property, head designs, and
manufacturing equipment, would indicate successful internal qualiÑcation of a Western Digital-manufactured 80 GB per
platter giant magnetoresistive head, we expect signiÑcant investment in research and development and investigation of
new recording technologies to extend recording technology will be required. The Company expects its capital
expenditures, viewed as an average over several years, to increase by approximately $70 million to $90 million to support
the acquired manufacturing operations of Read-Rite.
In addition, we may incur additional costs, expenses and risks, including:
‚ costs and expenses related to inventory adjustments, legal, accounting and Ñnancial advisory fees;
‚we may not have suÇcient head sources in the event that we are unable to manufacture a suÇcient supply of
heads to satisfy our needs;
‚third party head suppliers may not deal with us or may not deal with us on the same terms and conditions we
have previously enjoyed;
‚ component suppliers of Read-Rite may not deal with us on favorable terms;
‚ management may be unduly distracted in operating the newly acquired Read-Rite assets;
‚ we may not be able to attract and retain former Read-Rite employees to work in our facilities;
‚the costs of operating Read-Rite's assets may exceed the prices we have historically paid for heads or the prices
that might be otherwise available to us from other vendors;
‚we may be subject to claims that our manufacturing of heads may infringe certain intellectual property rights of
other companies; and
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