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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 PC hard disk
drives.
In addition, the Company believes the rate of PC unit growth is affected by several factors, including maturing PC
markets in North America and Western Europe, an increase in first-time buyers of PCs in Eastern Europe and Asia, and
the lengthening of PC replacement cycles. For an additional discussion of changes in the PC market, see Part II, Item 7,
under the heading ""Risk Factors That May Affect Future Results.''
Mobile Computing Market.
The Company expects the mobile computing market, which is primarily notebook computers, to grow faster than
the desktop PC or enterprise markets in the next three years. The Company entered this market in October 2004 with
the introduction of its WD Scorpio
TM
product, a 2.5-inch form factor hard disk drive.
The Company believes that the demand for mobile drives has grown from approximately 16% of the overall hard
disk drive market in 2002 to 24% of the overall hard disk drive market in 2004. The Company believes that this growth
trend will continue as people continue to buy notebook computers in increasing numbers.
Enterprise Market.
The enterprise market for hard disk drives focuses on customers that make workstations, servers, network attached
storage, storage area networks, and other computing systems or subsystems. This market has been traditionally served by
hard disk drives that use the small-computer-systems-interface (""SCSI'') standard. Recently, however, SCSI hard disk
drives are being supplemented by SATA hard disk drives in certain enterprise storage applications. SATA is an interface
technology supported by industry standards. In most applications, SATA hard disk drives cost less than SCSI while
maintaining reliability, scalability and performance necessary for many mainstream enterprise applications.
The Company believes that the use of SATA hard disk drives in the enterprise hard disk drive market will continue
to increase. For example, during the past few years a new disk-based back-up application has emerged with high-capacity
SATA hard disk drives augmenting SCSI, tape and optical media. This new trend, popularly referred to as ""near-line''
storage, has created a growth market due to the ability of hard disk drives to back-up or access data more quickly than
tape or optical solutions, and to quickly retrieve critical back-up or near-line data. The increasing use of hard disk drives
in near-line storage applications is also being enhanced by the availability of SATA hard disk drive solutions, which are
more cost competitive as compared to SCSI hard disk drives.
In addition, SATA drives are also being used in unique clustering applications for databases, scientific computing,
web caching and electronic mail. These applications have become an important market for large capacity SATA hard disk
drives and the Company believes that this market will continue to consume a growing portion of the Company's highest
capacity hard disk drives in the next three years.
Consumer Electronics Market.
The use of hard disk drives in consumer electronic products has been a new growth area in recent years. Currently,
the three largest uses for hard disk drives in this area are as follows:
‚ the storing and playing of digital television content in applications such as personal video recorders;
‚ the storing and playing of audio content in applications such as MP3 players; and
‚ the use of hard disk drives in game consoles.
Since 1999, hard disk drive-based recorders of audio and video content have been available for use in home
entertainment systems. Commonly called personal video recorders (""PVRs'') or digital video recorders (""DVRs''), these
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