Western Digital 2007 Annual Report Download - page 29

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record an accrual for estimated warranty costs at the time revenue is recognized. We may incur additional operating
expenses if our warranty provision does not reflect the actual cost of resolving issues related to defects in our products. If
these additional expenses are significant, it could adversely affect our business, financial condition and results of
operations.
Current or future competitors may gain a technology advantage or develop an advantageous cost structure that we cannot
match.
It may be possible for our current or future competitors to gain an advantage in product technology, manufacturing
technology, or process technology, which may allow them to offer products or services that have a significant advantage
over the products and services that we offer. Advantages could be in capacity, performance, reliability, serviceability, or
other attributes.
Higher capacity storage needs have typically been better served by magnetic hard drives than flash memory as hard
drive manufacturers can offer better value at high capacities, while lower capacity needs have been successfully served by
solid state storage such as flash memory technology. Advances in magnetic, optical, semiconductor or other data storage
technologies could result in competitive products that have better performance or lower cost per unit of capacity than our
products. If we fail to be cost competitive against flash memory, we could be at a competitive disadvantage to companies
using semiconductor technology.
Further industry consolidation could provide competitive advantages to our competitors.
The hard drive industry has experienced consolidation over the past several years. Consolidation by our competitors
may enhance their capacity, abilities and resources and lower their cost structure, causing us to be at a competitive
disadvantage. Additionally, continued industry consolidation may lead to uncertainty in areas such as component
availability, which could negatively impact our cost structure.
Sales in the distribution channel are important to our business, and if we fail to maintain brand preference with our
distributors or if distribution markets for hard drives weaken, our operating results could suffer.
Our distribution customers typically sell to small computer manufacturers, dealers, systems integrators and other
resellers. We face significant competition in this channel as a result of limited product qualification programs and a
significant focus on price and availability of product. If we fail to remain competitive in terms of our technology, quality,
service and support, our distribution customers may favor our competitors, and our operating results could suffer. We also
face significant risk in the distribution market for hard drives. If the distribution market weakens as a result of a slowing
PC growth rate, technology transitions or a significant change in consumer buying preference from white box to branded
PCs, or we experience significant price declines due to oversupply in the distribution channel, then our operating results
would be adversely affected.
The hard drive industry is highly competitive and can be characterized by significant shifts in market share among the major
competitors.
The price of hard drives has fallen over time due to increases in supply, cost reductions, technological advances and
price reductions by competitors seeking to liquidate excess inventories or attempting to gain market share. In addition,
rapid technological changes often reduce the volume and profitability of sales of existing products and increase the risk of
inventory obsolescence. We also face competition from other companies that produce alternative storage technologies like
flash memory. These factors, taken together, may result in significant shifts in market share among the industry’s major
participants. In addition, product recalls can lead to a loss of market share, which could adversely affect our operating
results.
Some of our competitors with diversified business units outside the hard drive industry periodically sell disk drives at prices
that we cannot profitably match.
Some of our competitors earn a significant portion of their revenue from business units outside the hard drive
industry. Because they do not depend solely on sales of hard drives to achieve profitability, they periodically sell hard
drives at lower prices and operate their hard drive business unit at a loss while still remaining profitable overall. In
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