Western Digital 2007 Annual Report Download - page 11

Download and view the complete annual report

Please find page 11 of the 2007 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 92

  • 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

Industry
We develop and manufacture hard drives for the desktop, mobile PC, enterprise, CE and branded product retail
markets. We believe that growth in the sales of hard drives has outpaced growth in the sales of all 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 2006 there were approximately 79% more hard drives sold in the market than PCs. We
believe the following factors primarily drive this accelerating growth of hard drive sales in addition to PC applications:
• 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, portability and
backup of data such as music, or digital photographs and video;
• increased use of multiple hard drives in PCs for data backup and expanded storage capacity; and
• increased use of multiple cost-optimized high performance hard drives in data-intensive applications such as
Internet search engines.
Additionally, we believe that the demand for 2.5-inch hard drives has grown from approximately 16% of the overall
hard drive market in calendar 2003 to 34% of the overall hard drive market in calendar 2006.
These factors and our product expansion strategy in the last three years have gradually increased our percentage of
revenue derived from non-desktop sources. In 2007, 57% of our revenue was from desktop computers and 43% was from
non-desktop sources, compared to 71% of our revenue from desktop computers and 29% from non-desktop sources in
2006.
For further discussion of the risks of the hard drive industry, please see Item 1A of this Annual Report on Form 10-K.
Desktop Market
The desktop market consists of the overall hard drive market for desktop computers. Individuals use desktop computers
in homes, businesses and multi-user networks. Desktop computers use software applications for word processing, spreadsheet,
desktop publishing, database management, multimedia, entertainment and for other needs. Hard drives store desktop
computer operating system and application software, as well as the data used by the applications.
We believe that the demand for hard drives in the desktop market has grown in part due to:
• the overall growth of desktop computer sales;
• the increasing needs of businesses and individuals for increased storage capacity on their desktop computers;
• the continuing development of software applications to manage multimedia content; and
• the increasing use of broadband Internet, including content downloaded from the Internet onto desktop
computer hard drives.
We believe several other factors affect the rate of desktop computer unit growth, including maturing desktop
markets in North America and Western Europe, an increase in first-time buyers of desktop computers in Asia,
Eastern Europe and Latin America, and the lengthening of desktop computer replacement cycles.
Mobile PC Market
The mobile PC market consists primarily of notebook computers. Individuals use notebook computers both in and
away from homes and businesses. Like desktop computers, notebook computers use software applications for various
needs and hard drives store notebook operating system and application software, and the data used by the applications.
We believe that the demand for hard drives in the mobile PC market has grown in part due to:
• the overall growth of notebook sales;
• the increased mobility of the workforce;
5