Western Digital 2009 Annual Report Download - page 24

If the worldwide economic downturn worsens, we may have to take additional steps to align our cost structure with demand,
which could result in increased impairment charges and have a negative impact on our operating results.
As we previously announced, we committed to a business restructuring plan intended to realign our cost structure
with a softer demand environment. If the worldwide economic downturn worsens and demand were to soften further, we
may be forced to execute additional restructuring activities to realign our cost structure with softening demand.
Additional restructuring activities could result in impairment charges and other expenses in excess of what we
anticipated when we previously announced our restructuring plan, either of which could adversely impact our results
of operations or financial condition.
If our long-lived assets or goodwill become impaired, it may adversely affect our operating results.
If the current worldwide economic downturn continues, it could result in circumstances, such as a sustained decline
in our stock price and market capitalization or a decrease in our forecasted cash flows such that they are insufficient,
indicating that the carrying value of our long-lived assets or goodwill may be impaired. If we are required to record a
significant charge to earnings in our consolidated financial statements because an impairment of our long-lived assets or
goodwill is determined, our results of operations will be adversely affected.
Declines in average selling prices (“ASPs”) in the hard drive industry could adversely affect our operating results.
Historically, the hard drive industry has experienced declining ASPs. Our ASPs tend to decline when competitors
lower prices as a result of decreased costs or to absorb excess capacity, liquidate excess inventories, restructure or attempt
to gain market share. Our ASPs also decline when there is a shift in the mix of product sales, and sales of lower priced
products increase relative to those of higher priced products. When ASPs in the hard drive industry decline, our ASPs are
also likely to decline, which adversely affects our operating results.
If we fail to anticipate or timely respond to changes in the markets for hard drives, our operating results could be adversely
affected.
During past economic downturns, as well as over the past few years, the consumer market for computers has shifted
significantly towards lower priced systems, and we therefore expect this trend to continue in light of the current negative
worldwide macroeconomic conditions. If we are not able to continue to offer a competitively priced hard drive for the
low-cost PC market, our share of that market will likely fall, which could harm our operating results. The market for hard
drives is also fragmenting into a variety of devices and products. Many industry analysts expect, as do we, that as content
increasingly converts to digital technology from the older analog technology, the technology of computers and consumer
electronics will continue to converge, and hard drives may be found in many products other than computers, such as
various CE devices. Accurately forecasting for future requirements of these new markets remains challenging.
Moreover, some devices such as personal video recorders and digital video recorders, or some new PC operating
systems which allow greater consumer choice in levels of functionality and therefore greater market differentiation, may
require attributes not currently offered in our products, resulting in a need to develop new interfaces, form factors,
technical specifications or product features, increasing our overall operational expense without corresponding incre-
mental revenue at this stage. If we are not successful in continuing to deploy our hard drive technology and expertise to
develop new products for emerging markets such as the CE market, or if we are required to incur significant costs in
developing such products, it may harm our operating results.
Our prices and margins are subject to declines due to unpredictable end-user demand and oversupply of hard drives.
Demand for our hard drives depends on the demand for systems manufactured by our customers and on storage
upgrades to existing systems. The demand for systems has been volatile in the past and often has had an exaggerated effect
on the demand for hard drives in any given period. As a result, the hard drive market has experienced periods of excess
capacity which can lead to liquidation of excess inventories and intense price competition. If intense price competition
occurs, we may be forced to lower prices sooner and more than expected, which could result in lower revenue and gross
margins.
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