Western Digital 2004 Annual Report Download - page 14

Competition
The Company competes primarily with manufacturers of 3.5-inch hard disk drives for desktop, enterprise and CE
systems. The Company's competitors in the hard disk drive market include Seagate Technology, Maxtor, Fujitsu, Hitachi
Global Storage Technologies, and Samsung. Over the last four years, the hard disk drive industry has experienced
consolidation, decreasing the number of major competitors. In particular, Maxtor acquired the hard disk drive business of
Quantum, Fujitsu exited the desktop hard disk drive market, and IBM sold its hard disk drive business to Hitachi
Global Storage Technologies.
The hard disk drive industry is intensely competitive, with hard disk drive suppliers competing for sales to a limited
number of major customers. Hard disk drives manufactured by diÅerent competitors are highly substitutable due to the
industry mandate of technical form, Ñt and function standards. Hard disk drive manufacturers compete on the basis of
product quality and reliability, storage capacity, unit price, product performance, production volume capabilities, delivery
capability, leadership in time-to-market, time-to-volume and time-to-quality, service and support, and ease of doing
business. The relative importance of these factors varies between diÅerent customer and market segments. The Company
believes that it is generally competitive in all of these factors.
The Company believes that the markets in which it competes, and those in which it plans to enter in the near
future, such as the mobile market, are at or approaching high volume mass market, where market acceptance and
consumer demand for products are strong. This represents a signiÑcant change in the industry. In prior years, the mobile,
handheld and enterprise markets were relatively small with low volumes and high prices. As these markets continue to
grow, consumers will demand lower cost points for the products that utilize these drives. As a result, it will be necessary
for suppliers to oÅer high quality, reliable products at low cost to be able to eÅectively compete. The Company believes
that its model enables it to deliver products with superior quality and reliability at a low cost.
The Company believes that there are no substantial barriers for existing competitors to oÅer competing products.
Therefore, the Company believes that it cannot diÅerentiate its hard disk drive products solely on attributes such as
storage capacity, buÅer size or time-to-market. Accordingly, the Company diÅerentiates itself by focusing on high
product quality and reliability, and designing and incorporating into its hard disk drives desirable product performance
attributes, such as seek time, data transfer rates, intelligent caching, failure prediction, remote diagnostics, acoustics and
data recovery. In addition, the Company emphasizes non-product related attributes, including rapid response with its
customers. Rapid response requires accelerated design cycles, customer delivery, production Öexibility and timely service
and support, which contribute to customer satisfaction. The Company also relies on the strength of the Western Digital
brand name with value-added resellers and solution providers to whom the Company sells its hard disk drive products
directly and indirectly. The Company believes that trust in a manufacturer's reputation and the establishment of strategic
relationships have become important factors in the selection of a hard disk drive, particularly within such a rapidly
changing technology environment.
Advances in magnetic, optical or other data storage technologies could result in competitive products that have
better performance or lower cost per unit of capacity than the Company's hard disk drive products. High-speed
semiconductor memory could compete with the Company's hard disk drive products in the future. Semiconductor
memory is much faster than magnetic hard disk drives, but currently is not competitive from a cost standpoint. Flash
memory, a non-volatile semiconductor memory, is currently much more costly and, while it has higher ""read''
performance than hard disk drives, it has lower ""write'' performance. Flash memory could become competitive in the
near future for applications requiring less storage capacity than that provided by hard disk drives.
For an additional discussion of competition, see Part II, Item 7, under the heading ""Risk Factors That May AÅect
Future Results.''
Service and Warranty
Western Digital generally warrants its newly manufactured hard disk drives against defects in materials and
workmanship for a period of one to Ñve years from the date of sale. The Company's warranty obligation is generally
limited to repair or replacement of the hard disk drive. The Company has engaged third parties in Australia, Brazil,
Canada, China, Germany, Hungary, India, Korea, Russia, Singapore, and the United Arab Emirates to provide various
levels of testing, processing and/or recertiÑcation of returned hard disk drives for the Company's customers. In addition,
the Company processes, tests and recertiÑes returned hard disk drives at its own facility in the United States.
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