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PART I
Item 1. Business
General
Western Digital Corporation (the ""Company'' or ""Western Digital'') designs, develops, manufactures and markets
hard disk drives, one of the key components found in most computers and data storage subsystems. Hard disk drives are
also found in a number of consumer electronics (""CE'') devices. A hard disk drive is a device that stores data on one or
more rotating magnetic disks to allow fast access to non-volatile data for computing needs. The Company's hard disk
drives are used in desktop personal computers (""PCs''), enterprise servers, network attached storage devices, an
expanding list of CE products such as video game consoles, personal/digital video recorders, satellite and cable set-top
boxes, and as external storage devices. The Company's hard disk drive products currently include 3.5-inch form factor
drives with capacities ranging from 8 gigabytes (""GB'') to 250 GB, nominal rotation speeds of 5400, 7200 and 10,000
revolutions per minute (""RPM''), and oÅer interfaces including Enhanced Integrated Drive Electronics (""EIDE''),
Serial Advanced Technology Attachment (""SATA''), 1394/FireWire/i.Link
TM
and Universal Serial Bus (""USB''). The
Company sells its products worldwide to computer manufacturers for inclusion in their computer systems or subsystems,
to CE manufacturers for inclusion into their devices, and to distributors, resellers and retailers. The Company's hard disk
drive products are currently manufactured in Malaysia and Thailand. For geographical Ñnancial data, see the Company's
Consolidated Financial Statements and Note 9 thereto included in this Annual Report on Form 10-K. In this Annual
Report on Form 10-K, the Company refers to market data available from TrendFOCUS, Inc. (""TrendFOCUS'') and
Gartner/Dataquest, Inc. (""Gartner''), both of which are leading market research and analysis Ñrms that provide data
regarding the hard disk drive industry.
Industry
Western Digital's primary business focus is the sale of hard disk drives to the desktop PC, enterprise and CE
markets.
Desktop PC Market.
Desktop PCs are used in a number of environments, ranging from homes to businesses and multi-user networks.
Software applications are used on desktop PCs for word processing, spreadsheet, desktop publishing, database
management, multimedia, entertainment and other related applications. Hard disk drives store both software applications
and the data used by these software applications. The Company believes that the demand for hard disk drives in the PC
market has grown in part due to:
‚ the overall growth of PC sales;
‚ the increasing needs of businesses and individuals to store larger amounts of data on their PCs;
‚ the continuing development of software applications to manage multimedia content; and
‚ the increasing use of broadband Internet, including downloading content from the Internet onto desktop PC hard
disk drives.
TrendFOCUS estimates that the aggregate number of desktop PCs sold during calendar year 2003 was 115 million
units and will increase to 152 million units in calendar year 2008, reÖecting a compound annual growth rate of
approximately 7%. The Company believes the rate of PC unit growth is being inÖuenced by several factors, including
maturing markets in North America and Western Europe, an increase in Ñrst-time buyers in Eastern Europe and Asia,
the lengthening of PC replacement cycles and an increasing preference for notebook systems. For an additional discussion
of changes in the PC market, see Part II, Item 7, under the heading ""Risk Factors That May AÅect Future Results.''
According to TrendFOCUS quarterly reports for 2004 and calendar year 2003, the desktop PC segment is the
largest market for hard disk drives, accounting for approximately 65% of global hard disk drive shipments in 2004.
Approximately 90% of Western Digital's hard disk drive unit shipments in 2004 were to this market. TrendFOCUS
estimates that worldwide unit shipments of hard disk drives into this market will grow from approximately 178 million
units in calendar year 2003 to approximately 232 million units in calendar year 2007, and that revenue will grow from
3