Western Digital 2004 Annual Report Download - page 31

expertise to develop new products for the emerging consumer electronics market, or if we are required to incur signiÑcant
costs in developing such products, it may harm our operating results.
If we do not successfully expand into new hard disk drive market segments, our business may suÅer.
To remain a signiÑcant supplier of hard disk drives, we will need to oÅer a broad range of hard disk drive products
to our customers. We currently oÅer a variety of 3.5-inch form factor hard disk drives for the desktop computer market.
However, demand for hard disk drives may shift to products in smaller form factors, which we do not currently oÅer, but
which some of our competitors oÅer. In addition, the enterprise and desktop PC industries are transitioning to higher
speed interfaces such as SATA to handle higher data transfer rates. We currently oÅer SATA products; however, the
transition of technology and the introduction of new products is challenging and creates risks. While we continue to
develop new products and look to expand into non-desktop applications such as consumer electronics and mobile
products, the success of our new product introductions is dependent on a number of factors, including diÇculties faced in
manufacturing ramp, market acceptance, eÅective management of inventory levels in line with anticipated product
demand, and the risk that our new products will have quality problems or other defects in the early stages of introduction
that were not anticipated in the design of those products. If we fail to successfully develop and manufacture new
products, customers may decrease the amount of our products that they purchase, and we may lose business to our
competitors who oÅer these products or who use their dominance in the enterprise or mobile market to encourage sales of
desktop hard disk drives.
We depend on our key personnel and skilled employees.
Our success depends upon the continued contributions of our key personnel and skilled employees, many of whom
would be extremely diÇcult to replace. Worldwide competition for skilled employees in the hard disk drive industry is
intense. Volatility or lack of positive performance in our stock price may adversely aÅect our ability to retain key
personnel or skilled employees who have been granted stock options. If we are unable to retain our existing key personnel
or skilled employees, or hire and integrate new key personnel or skilled employees, our operating results would likely be
harmed.
Loss of market share with a key customer could harm our operating results.
A majority of our revenue comes from a few customers. For example, during 2004, sales to our top 10 customers
accounted for 51% of revenue, as compared to 55% of revenue for 2003. These customers have a variety of suppliers to
choose from and therefore can make substantial demands on us. Even if we successfully qualify a product with a
customer, the customer generally is not obligated to purchase any minimum volume of products from us and is able to
terminate its relationship with us at any time. Our ability to maintain strong relationships with our principal customers is
essential to our future performance. If we lose a key customer, or if any of our key customers reduce their orders of our
products or require us to reduce our prices before we are able to reduce costs, our operating results would likely be
harmed. In addition, if customer pressures require us to reduce our pricing such that our gross margins are diminished,
we could decide not to sell our products to a particular customer, which could result in a decrease in our revenue.
Dependence on a limited number of qualiÑed suppliers of components and manufacturing equipment could lead to delays, lost
revenue or increased costs.
Because we depend on a limited number of suppliers for certain hard disk drive components and manufacturing
equipment, an increase in the cost of such components or equipment, an extended shortage of required components or
equipment, or the failure of key suppliers to remain in business, adjust to market conditions, or to meet our quality, yield
or production requirements could signiÑcantly harm our operating results. A number of the components used by us are
available from only a single or limited number of qualiÑed outside suppliers, and there is continued attrition and
consolidation in our supplier base. In addition, some of the components (or component types) used in our products are
used in other devices, such as mobile telephones and digital cameras. If there is a signiÑcant simultaneous upswing in
demand for such a component (or component type) from several high volume industries, resulting in a supply reduction,
or a component is otherwise in short supply, or if a supplier fails to qualify or has a quality issue with a component, we
may experience delays or increased costs in obtaining that component. In addition, if a component becomes unavailable,
we could suÅer signiÑcant loss of revenue.
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