Western Digital 2007 Annual Report Download - page 25

Dependence on a limited number of qualified suppliers of components and manufacturing equipment could lead to delays, lost
revenue or increased costs.
Certain components are available from a limited number of suppliers. Because we depend on a limited number of
suppliers for certain hard drive components and manufacturing equipment, each of the following could significantly
harm our operating results:
• an increase in the cost of such components or equipment;
• an extended shortage of required components or equipment;
• consolidation of key suppliers, such as the acquisition of Brilliant Manufacturing Limited by Nidec Corporation,
the acquisition of Agere Systems Inc. by LSI Logic Corporation, and the planned acquisition of Alps Electric Co.
Ltd.’s magnetic device division’s assets and related intellectual property by TDK Corp;
• failure of a key supplier’s business process; or
• the failure of key suppliers to remain in business, to remain independent merchant suppliers, to adjust to market
conditions, or to meet our quality, yield or production requirements.
Our future operating results may also depend substantially on our suppliers’ ability to timely qualify their
components in our programs, and their ability to supply us with these components in sufficient volumes to meet our
production requirements. A number of the components that we use are available from only a single or limited number of
qualified outside suppliers, and may be used across multiple product lines. In addition, some of the components (or
component types) used in our products are used in other devices, such as mobile telephones and digital cameras. If there is
a significant simultaneous upswing in demand for such a component (or component type) from several high volume
industries, resulting in a supply reduction, or a component is otherwise in short supply, or if a supplier fails to qualify or
has a quality issue with a component, we may experience delays or increased costs in obtaining that component. For
example, in the last year the hard drive industry faced a tightness in the availability of materials used in the manufacture
of magnetic components, such as heads, media and magnets. If we are unable to obtain sufficient quantities of materials
used in the manufacture of magnetic components, or other necessary components, we may experience production delays
which could cause us loss of revenue. If a component becomes unavailable, we could suffer significant loss of revenue.
In addition, certain equipment we use in our manufacturing or testing processes is available only from a limited
number of suppliers. Some of this equipment uses materials that at times could be in short supply. If these materials are
not available, or are not available in the quantities we require for our manufacturing and testing processes, our ability to
manufacture our products could be impacted, and we could suffer significant loss of revenue.
Contractual commitments with component suppliers may result in us paying increased charges and cash advances for such
components.
To reduce the risk of component shortages, we attempt to provide significant lead times when buying components.
As a result, we may be subject to cancellation charges if we cancel orders, which may occur when we make technology
transitions or when our component needs change. In addition, we have entered into contractual commitments with
component suppliers, such as suppliers of media, and may enter into contractual commitments with other component
suppliers, in an effort to increase and stabilize the supply of those components, and enable us to purchase such
components at favorable prices. Some of these commitments require or may require us to buy a substantial number of
components from the supplier or make significant cash advances to the supplier, however these commitments may not
result in a satisfactory increase or stabilization of the supply of such components.
Our high-volume hard drive manufacturing facilities, and the manufacturing facilities of many of our suppliers, are concen-
trated in Asia, and our planned media manufacturing facilities will be located in Asia, which subjects us to the risk of dam-
age or loss of any of these facilities and localized risks to employees in these locations.
Our high-volume hard drive manufacturing facilities are in Malaysia and Thailand and the manufacturing facilities
of many of our suppliers are in Asia. Following our planned acquisition of Komag, we will also have media and substrate
manufacturing facilities in Malaysia. A condition or event such as political instability, civil unrest or a power outage, or a
fire, flood, earthquake or other disaster that adversely affects any of these facilities or our ability to manufacture could
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