Western Digital 2006 Annual Report Download - page 10

Download and view the complete annual report

Please find page 10 of the 2006 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 116

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116

PART I
Item 1. Business
General
We design, develop, manufacture and sell hard drives. A hard drive is a device that uses one or more rotating
magnetic disks to store and allow fast access to data. Hard drives are key components of computers, data storage
subsystems and many consumer electronic devices.
We sell our products worldwide to original equipment manufacturers (“OEMs”) for use in computer systems,
subsystems or consumer electronics (“CE”) devices, and to distributors, resellers and retailers. Our hard drives are used in
desktop computers, notebook computers, and enterprise applications such as servers, workstations, network attached
storage and storage area networks. Additionally, our hard drives are used in CE applications such as digital video recorders
(“DVRs”), satellite and cable set-top boxes (“STBs”), MP3 players, and USB thumb drives. We also sell our hard drives as
stand-alone storage products and integrate them into our own WD-branded external storage products for purposes such
as personal data backup and portable or expanded storage of digital music, photography, video, and other data.
Hard drives provide non-volatile data storage, which means that the data remains present when power is no longer
applied to the device. Our hard drives currently include 3.5-inch, 2.5-inch and 1.0-inch form factor drives. The 3.5-inch
form factor drives have capacities ranging from 36 gigabytes (“GB”) to 500 GB, nominal rotation speeds of 7,200 and
10,000 revolutions per minute (“RPM”), and offer interfaces including both 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 160 GB, nominal rotation speed of 5,400 RPM, and offer both the EIDE and SATA interfaces. Our
1.0-inch form factor, with 4 and 6 GB hard drives, used primarily in miniature portable storage devices, have a nominal
rotation speed of 3,600 RPM and use the CompactFlash»130 interface.
We assemble hard drives in Malaysia and Thailand. We also design and manufacture a substantial portion of our
required magnetic heads, head gimbal assemblies (“HGAs”) and head stack assemblies (“HSAs”) in Fremont, California
and Bang Pa-In, Thailand. For geographical financial data, see Part II, Item 8, Note 10 in the Notes to Consolidated
Financial Statements, included in this Annual Report on Form 10-K.
Business Strategy
Our business strategy is to provide a broad selection of reliable, high quality hard drives at a low total cost of
ownership and with high efficiency. We believe this strategy helps accomplish the following:
• distinguishes us in the dynamic and competitive hard drive industry;
• provides great value to our customers; and
• allows us to better achieve consistent financial performance, including strong returns on invested capital.
We have designed our business strategy to accommodate significant unit and revenue growth with relatively small
increases in operating expenses and to consistently achieve high asset utilization.
Industry
We develop and manufacture hard drives for the desktop, mobile, enterprise, CE and retail markets. We believe that
growth in the sales of hard drives has outpaced growth in the sales of all desktop and notebook computers (“PCs”) over the
past five years. Based on industry data, in calendar 2001 there were approximately 50% more hard drives sold in the
market than PCs. In contrast, in calendar 2005 there were approximately 74% more hard drives sold in the market than
PCs. We believe the following factors primarily drive this accelerating growth of hard drive sales versus PC sales:
• consumer use of hard drives for the playing, retention, and creation of digital content for personal use in the
rapidly growing CE market;
• growth of the external hard drive or branded products market, permitting the easy storage and backup of data
such as music or digital photographs;
4