Western Digital 2003 Annual Report Download - page 34

‚we could incur substantial costs, including clean up costs, Ñnes and civil or criminal sanctions, as a result of
violations of or liabilities under environmental laws applicable to our new Fremont, California facility, including
those governing the discharge of pollutants into the air and water.
If we do not adequately address the challenges related to the acquisition, our ongoing operations could be disrupted,
resulting in a decrease in our revenue or proÑt margins, and negatively impacting our operating results.
To develop new products we must maintain eÅective partner relationships with our strategic component suppliers.
Under our business model, we do not manufacture any of the component parts used in our hard drives, other than
heads as a result of our recent acquisition of the assets of Read-Rite. As a result, the success of our products depends on
our ability to gain access to and integrate parts that are ""best in class'' from reliable component suppliers. To do so we
must eÅectively manage our relationships with our strategic component suppliers. We must also eÅectively integrate
diÅerent products from a variety of suppliers, each of which employs variations on technology, which can impact, for
example, feasible combinations of heads and media components. Until recently, we were engaged in litigation with
Cirrus, a supplier who previously was the sole source of read channel devices for our hard drives. We settled this litigation
in August 2003. As a result of the disputes that gave rise to the litigation, our business operations were at risk until
another supplier's read channel devices could be designed into our products. Similar disputes with other strategic
component suppliers could adversely aÅect our operating results.
Some of our customers have adopted a subcontractor model that increases our credit risk and could result in an increase in
our operating costs.
Some of our OEM customers have adopted a subcontractor model that requires us to contract directly with
companies that provide manufacturing services to our OEM customers. Because these subcontractors are generally not as
well capitalized as our direct OEM customers, this subcontractor model exposes us to increased credit risks. Our
agreements with our OEM customers may not permit us to increase our product prices to alleviate this increased credit
risk. Any credit losses we may suÅer as a result of this increased risk would increase our operating costs, which may
negatively impact our operating results.
We have only two high-volume hard-drive manufacturing facilities and two head manufacturing facilities, which subjects
us to the risk of damage or loss of any of these facilities.
The majority of our hard drive manufacturing volume comes from one facility in Malaysia. During 2002, we
acquired a second, smaller manufacturing facility in Thailand. In addition, following our acquisition of the assets of
Read-Rite in July 2003, we are operating a wafer fabrication facility in Fremont, California and a slider fabrication
facility in Thailand. A Ñre, Öood, earthquake or other disaster, condition or event that adversely aÅects any of these
facilities or our ability to manufacture could result in a loss of sales and revenue and harm our operating results.
Terrorist attacks may adversely aÅect our business and operating results.
The terrorist attacks on the United States on September 11, 2001, the United States-led military response to counter
terrorism and the continued threat of terrorist activity and other acts of war or hostility have created uncertainty in the
Ñnancial and insurance markets and have signiÑcantly increased the political, economic and social instability in some of
the geographic areas in which the Company operates. Further acts of terrorism, either domestically or abroad, could create
further uncertainties and instability. To the extent this results in disruption or delays of our manufacturing capabilities or
shipments of our products, our business, operating results and Ñnancial condition could be adversely aÅected.
Manufacturing our products abroad subjects us to numerous risks.
We are subject to risks associated with our foreign manufacturing operations, including:
‚ obtaining requisite United States and foreign governmental permits and approvals;
‚ currency exchange rate Öuctuations or restrictions;
‚ political instability and civil unrest;
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