Western Digital 2006 Annual Report Download - page 39

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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 (“HGA”) and head stack assemblies (“HSA”) in Fremont, California
and Bang Pa-In, Thailand. For geographical financial data, see Part II, Item 8, Note 10 of the Notes to Consolidated
Financial Statements, included in this Annual Report on Form 10-K.
Market Overview
For calendar year 2005, we believe that the total market for hard drives was more than 380 million units, or almost
$28 billion in sales. Over half of these unit shipments were to the desktop market. Total hard drive unit growth depends
greatly on developments in the PC market. We believe that the demand for hard drives in the PC market has grown in
part due to:
• the overall growth of PC sales;
• the increasing needs of businesses and individuals for increased storage capacity on their PCs;
• the continuing development of software applications to manage multimedia content; and
• the increasing use of broadband Internet, including content downloaded from the Internet onto PC hard drives.
We believe several other factors affect the rate of PC unit growth, including maturing PC markets in North America
and Western Europe, an increase in first-time buyers of PCs in Asia, Eastern Europe and Latin America, and the
lengthening of PC replacement cycles.
We entered the mobile market in the first quarter of 2005, commencing volume production of our WD Scorpio
TM
family of 2.5-inch hard drives for notebook computers. We expect the mobile market, which is primarily notebook
computers, to continue to grow faster than the desktop or enterprise markets in the next three years. We believe that the
demand for mobile drives has grown from approximately 16% of the overall hard drive market in 2003 to 21% of the
overall hard drive market in 2005. As the mobile market evolves to a higher volume market, we believe customers are
placing increased emphasis on attributes such as quality, reliability, execution, flexibility, and competitive cost structures
on their hard drive suppliers. These are the same attributes that have mattered for many years to customers in the high-
volume desktop market.
The enterprise market for hard drives focuses on customers that make workstations, servers, network attached
storage devices, storage area networks, and other computing systems or subsystems. We serve this market with hard
drives using the SATA interface, which is similar in performance in some applications to the Small Computer Systems
Interface (“SCSI”), but more cost effective than SCSI. We believe that the enterprise market has two distinct sectors: a
marketplace for high-performance enterprise hard drives and a marketplace for high capacity enterprise hard drives. We
believe that acceptance of SATA in both of these enterprise market sectors is growing. Additionally, we offer high-
capacity, high reliability Parallel Advanced Technology Attachment (“PATA”) enterprise products to service video
surveillance and similar PATA-based systems. Expansion of our involvement in the enterprise market may require us to
make additional investments.
The use of hard drives in CE products has been a major growth area in recent years. Today’s three largest segments of
this market are: (1) digital television content in applications such as DVRs; (2) audio content in applications such as
consumer handheld devices, such as MP3 players; and (3) hard drives in game consoles. Since 1999, DVRs have been
available for use in home entertainment systems and they offer enhanced capabilities such as pausing live television,
simplifying the process of recording, cataloging recorded television programs and quickly forwarding or returning to any
section of a recorded television program. The market for DVR products favors large capacity hard drives and continues to
grow in Japan, North America, and Europe. We believe growth in this market will continue to build demand for higher
capacity hard drives. Hard drives with 1.8-inch or 1.0-inch form factors primarily address the consumer handheld device
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