Western Digital 2005 Annual Report Download - page 38

match their cost structure, we could be at a competitive disadvantage to those competitors as they may be able to sell
hard disk drives at lower margins while remaining profitable.
Some of our competitors with diversified business units outside the hard disk drive industry may be able to sell disk
drives at lower margins that we cannot match.
Some of our competitors earn a significant portion of their revenue from business units outside the hard disk drive
industry. Because they do not depend solely on sales of hard disk drives to achieve profitability, they may be able to sell
hard disk drives at lower margins and still remain profitable. In addition, if these competitors can increase sales of non
hard disk drive products to the same customers, they may benefit from selling their hard disk drives at low margins. Our
results of operations may be adversely affected if we can not successfully compete with these companies.
The nature of our business and our reliance on intellectual property and other proprietary information subjects us to the
risk of significant litigation.
The hard disk drive industry has been characterized by significant litigation. This includes litigation relating to
patent and other intellectual property rights, product liability claims and other types of litigation. Litigation can be
expensive, lengthy and disruptive to normal business operations. Moreover, the results of litigation are inherently
uncertain and may result in adverse rulings or decisions. We may enter into settlements or be subject to judgments that
may, individually or in the aggregate, have a material adverse effect on our business, financial condition or results of
operations.
We are currently evaluating notices of alleged patent infringement or notices of patents from patent holders. If
claims or actions are asserted against us, we may be required to obtain a license or cross-license, modify our existing
technology or design a new non-infringing technology. Such licenses or design modifications can be extremely costly. In
addition, we may decide to settle a claim or action against us, which settlement could be costly. We may also be liable for
any past infringement. If there is an adverse ruling against us in an infringement lawsuit, an injunction could be issued
barring production or sale of any infringing product. It could also result in a damage award equal to a reasonable royalty
or lost profits or, if there is a finding of willful infringement, treble damages. Any of these results would likely increase
our costs and harm our operating results.
Our reliance on intellectual property and other proprietary information subjects us to the risk that these key ingredients
of our business could be copied by competitors.
Our success depends, in significant part, on the proprietary nature of our technology, including non-patentable
intellectual property such as our process technology. Despite safeguards, to the extent that a competitor is able to
reproduce or otherwise capitalize on our technology, it may be difficult, expensive or impossible for us to obtain necessary
legal protection. Also, the laws of some foreign countries may not protect our intellectual property to the same extent as
do the laws of the United States. In addition to patent protection of intellectual property rights, we consider elements of
our product designs and processes to be proprietary and confidential. We rely upon employee, consultant and vendor non-
disclosure agreements and contractual provisions and a system of internal safeguards to protect our proprietary
information. However, any of our registered or unregistered intellectual property rights may be challenged or exploited by
others in the industry, which might harm our operating results.
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 difficult 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 affect 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.
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