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PART I
Item 1. Business
General
Western Digital Corporation (the ""Company'' or ""Western Digital'' or ""WD'') designs, develops, manufactures
and sells hard disk drives. A hard disk drive is a device that stores data on one or more rotating magnetic disks to allow
fast access to data. Hard disk drives are one of the key components found in most computers and data storage
subsystems.
The Company's hard disk drives are used in desktop personal computers (""PCs''), notebook computers, enterprise
applications such as servers, workstations, network attached storage and storage area networks, and in consumer
electronics (""CE'') products such as personal/digital video recorders (""DVRs'') and satellite and cable set-top boxes
(""STBs''). In addition, the Company's hard disk drives are used in external hard disk drive products that feature high
speed buses such as 1394/FireWire/iLink
TM
, Universal Serial Bus (""USB'') and Ethernet.
Hard disk drives provide non-volatile data storage, which means that the data is not lost when power is no longer
applied to the device. The Company's hard disk drive products currently include 3.5-inch and 2.5-inch form factor
drives. The 3.5-inch form factor drives have capacities ranging from 40 gigabytes (""GB'') to 400 GB, nominal rotation
speeds of 5400, 7200 and 10,000 revolutions per minute (""RPM''), and offer interfaces including Enhanced Integrated
Drive Electronics (""EIDE'') and Serial Advanced Technology Attachment (""SATA''). The 2.5-inch form factor drives
have capacities ranging from 40 GB to 80 GB, nominal rotation speed of 5400 RPMs, and offer the EIDE interface. In
addition, the Company has plans to enter the 1.0-inch hard disk drive market in the future. The Company anticipates
that 1.0 inch hard disk drive products could be used in a variety of handheld consumer devices such as MP3 players,
cameras, and cell phones.
The Company sells its products worldwide to original equipment manufacturers (""OEMs'') for inclusion in
computer systems or subsystems, and to distributors, resellers and retailers. The Company's hard disk drive products are
currently manufactured in Malaysia and Thailand. For geographical financial data, see the Company's Consolidated
Financial Statements and Note 9 thereto included in this Annual Report on Form 10-K.
Industry
Western Digital's primary business focus is the design, development, manufacture and sale of hard disk drives to
the desktop PC, mobile, enterprise and consumer electronics markets.
The Company believes based on industry data that historically the sale of personal computers and hard disk drives
were similar in volume, however, during the last five years, the Company believes the growth in hard disk drive sales has
outpaced growth in personal computer sales. For example, based on industry data the Company believes in calendar 2001
there were approximately 34% more hard disk drives sold in the market than personal computers. In contrast, in calendar
2004 there were approximately 61% more hard disk drives sold in the market than personal computers. The Company
believes that this accelerating growth of hard disk drive sales is driven primarily by the following:
‚ Alternative products such as consumer electronics products that use hard disk drives for the playing, retention,
and creation of digital content for personal use; the commercial market for hard disk drives used in consumer
electronic devices did not largely exist seven years ago and a strong growth opportunity for this market exists.
‚ The growth of the external hard disk drive market, which allows users to add additional hard disk drives to their
computers in a more convenient fashion allowing increased storage of data such as music or digital photographs.
‚ The increased use of multiple hard disk drives in personal computers for data safety and higher storage capacity.
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
3