Western Digital 2007 Annual Report Download - page 31

and selling the 2.5-inch hard drives, and if we are unable to recover those costs from sales of the products, then we may not
be able to compete successfully in this market and our operating results may suffer.
Furthermore, if we do not accurately predict the future growth and demands of the mobile market, our business may
suffer. For example, if the volume demand of the PC market shifts from desktop computers to notebook computers at a
faster rate than we anticipate, we would be at a more significant competitive disadvantage to companies who have been
more successful in the mobile market.
Selling to the retail market has become an important part of our business, and if we fail to maintain and grow our market
share or gain market acceptance of our branded products, our operating results could suffer.
We sell our branded products directly to a select group of major retailers, for example, computer superstores and CE
stores, and authorize sales through distributors to other retailers and online resellers. Our current retail customer base is
primarily in the United States, Canada and Europe. We are facing increased competition from other companies for shelf
space at a small number of major retailers that have strong buying power and pricing leverage. If we fail to successfully
maintain a customer preference for Western Digital brand products or fail to successfully expand into multiple channels,
our operating results may be adversely affected. We face strong competition in maintaining and trying to grow our
market share in the retail market, particularly because of the relatively low barriers to entry in this market. We will
continue to introduce new products in the retail market that incorporate our disk drives, however there can be no
assurance that these products will gain market acceptance, and if they do not, our operating results could suffer.
Loss of market share with or by a key customer could harm our operating results.
During 2007, a large percentage of our revenue came from sales to our top 10 customers, which accounted for 47% of
our revenue. One of these customers, Dell, accounted for more than 10% of our revenue. These customers have a variety of
suppliers to choose from and therefore can make substantial demands on us, including demands on product pricing and on
contractual terms, which often results in the allocation of risk to us as the supplier. Even if we successfully qualify a product
with a customer, the customer generally is not obligated to purchase any minimum volume of products from us and may be
able to cancel an order or terminate its relationship with us at any time. Our ability to maintain strong relationships with
our principal customers is essential to our future performance. If we lose a key customer, if any of our key customers reduce
their orders of our products or require us to reduce our prices before we are able to reduce costs, if a customer is acquired by
one of our competitors or if a key customer suffers financial hardship then our operating results would likely be harmed. In
addition, if customer pressures require us to reduce our pricing such that our gross margins are diminished, we could decide
not to sell our products to a particular customer, which could result in a decrease in our revenue.
We may be unable to retain our key staff and skilled employees.
Our success depends upon the continued contributions of our key staff and skilled employees, many of whom would
be extremely difficult to replace. Worldwide competition for skilled employees in the hard drive industry is intense.
Volatility or lack of positive performance in our stock price may adversely affect our ability to retain key staff or skilled
employees who have received equity compensation. If we are unable to retain our existing key staff or skilled employees,
or hire and integrate new key staff or skilled employees, or if we fail to implement succession plans for our key staff, our
operating results would likely be harmed.
Manufacturing and marketing our products abroad subjects us to numerous risks.
We are subject to risks associated with our foreign manufacturing operations and foreign marketing efforts,
including:
• obtaining requisite United States of America and foreign governmental permits and approvals;
• currency exchange rate fluctuations or restrictions;
• political instability and civil unrest;
• limited transportation availability, delays, and extended time required for shipping, which risks may be
compounded in periods of price declines;
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