Western Digital 2009 Annual Report Download - page 18

For an additional discussion of risks related to technological innovations, see Item 1A of this Annual Report on
Form 10-K.
Sales and Distribution
We sell our products globally to OEMs, ODMs, distributors and retailers. OEMs purchase our products, either
directly or through a contract manufacturer such as an ODM, and assemble them into the computer or CE systems they
build. Distributors typically sell our products to non-direct customers such as small computer and CE manufacturers,
dealers, systems integrators, online retailers and other resellers. Retailers typically sell our products directly to end-users
through their storefront or online facilities.
Original Equipment Manufacturers
Sales to OEMs, which include sales through ODMs, accounted for 54%, 51% and 48% of our net revenue in 2009,
2008 and 2007, respectively. For 2009 and 2007, sales to Dell Inc. accounted for 10% of our net revenue. For 2008, no
single customer accounted for 10%, or more, of our net revenue. We believe that our success depends on our ability to
maintain and improve our strong relationships with the leading OEMs.
OEMs evaluate and select their hard drive and solid-state drive suppliers based on a number of factors, including
quality and reliability, storage capacities, performance characteristics, price, service and support, ease of doing business,
and the supplier’s long-term financial stability. They typically seek to qualify two or more providers for each generation of
products, and once an OEM has chosen its qualified vendors for a given product, it generally will purchase products from
those vendors for the life of that product. To achieve success with OEM qualifications, a supplier must consistently offer
products featuring leading technology, quality and reliability at acceptable capacity. Suppliers must quickly achieve
volume production of each new generation of high quality and reliable hard drives or solid-state drives, requiring access
to flexible, high-capacity, high-quality manufacturing capabilities.
Many of our OEM customers utilize just-in-time inventory management processes or supply chain business models
that combine “build-to-order,” in which they do not build until there is a firm order, and “contract manufacturing,” in
which the OEM contracts assembly work to a contract manufacturer, such as an ODM, who purchases components and
assembles the computer based on the OEM’s instructions. For certain OEMs, we maintain a base stock of finished goods
inventory in facilities located near or adjacent to the OEM’s operations.
For an additional discussion of risks related to our need to adapt to our customers’ business models and maintain
customer satisfaction, refer to Item 1A of this Annual Report on Form 10-K.
Distributors
We use a broad group of distributors to sell our products to non-direct customers such as small computer and CE
manufacturers, dealers, systems integrators, online retailers and other resellers. Distributors accounted for approximately
26%, 31% and 36% of our net revenue for 2009, 2008 and 2007, respectively. Distributors generally enter into non-
exclusive agreements for specific territories with us for the purchase and redistribution of our products in those
territories. We grant our distributors limited price protection rights.
Retailers
We sell our branded products directly to a select group of major retailers such as computer superstores, warehouse
clubs, online retailers, and computer electronics stores, and authorize sales through distributors to smaller retailers.
Retailers accounted for approximately 20%, 18% and 16% of our net revenue for 2009, 2008 and 2007, respectively. Our
current retail customer base is primarily in the United States (“U.S.”), Canada and Europe. The retail channel
complements our other sales channels while helping to build brand awareness for WD and our products. Retailers
supply end-users with our products to upgrade their computers, externally store their data for backup or mobility
purposes and play their stored digital content on their television or home theater systems. We grant our retailers price
protection and limited rights to return product on an inventory rotation basis. We also sell our branded products through
our web site.
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