Western Digital 2009 Annual Report Download - page 25

Our failure to accurately forecast market and customer demand for our products could adversely affect our business and
financial results or operating efficiencies.
The data storage industry faces difficulties in accurately forecasting market and customer demand for its products.
The variety and volume of products we manufacture is based in part on these forecasts. If our forecasts exceed actual
market demand, or if market demand decreases significantly from our forecasts, then we could experience periods of
product oversupply and price decreases, which could impact our financial performance. If our forecasts do not meet actual
market demand, or if market demand increases significantly beyond our forecasts or beyond our ability to add
manufacturing capacity, then we may not be able to satisfy customer product needs, which could result in a loss of
market share if our competitors are able to meet customer demands.
Although we receive forecasts from our customers, they are not generally obligated to purchase the forecasted
amounts. Sales volumes in the distribution and retail channels are volatile and harder to predict than sales to our OEM or
ODM customers. We consider these forecasts in determining our component needs and our inventory requirements. If we
fail to accurately forecast our customers’ product demands, we may have inadequate or excess inventory of our products or
components, which could adversely affect our operating results.
In order to efficiently and timely meet the demands of many of our OEM customers, we position our products in
multiple strategic locations based on the amounts forecasted by such customers. If an OEM customer’s actual product
demands decrease significantly from its forecast, then we may incur additional costs in relocating the products that have
not been purchased by the OEM. This could result in a delay in our product sales and an increase in our operating costs,
which may negatively impact our operating results.
Increases in areal density may outpace customers’ demand for storage capacity, which may lower the prices our customers are
willing to pay for new products or put us at a disadvantage to competing technologies.
Historically, the industry has experienced periods of variable areal density growth rates. When the rate of areal
density growth increases, the rate of increase may exceed the increase in our customers’ demand for aggregate storage
capacity. Furthermore, our customers’ demand for storage capacity may not continue to grow at current industry
estimates as a result of developments in the regulation and enforcement of digital rights management, the emergence of
processes such as cloud computing, data deduplication and storage virtualization, or otherwise. These factors could lead
to our customers’ storage capacity needs being satisfied at lower prices with lower capacity hard drives or solid-state
storage products that we do not offer, thereby decreasing our revenue or putting us at a disadvantage to competing storage
technologies. As a result, even with increasing aggregate demand for storage capacity, our ASPs could decline, which
could adversely affect our operating results.
Our entry into additional storage markets increases the complexity of our business, and if we are unable to successfully adapt
our business processes as required by these new markets, we will be at a competitive disadvantage and our ability to grow will
be adversely affected.
As we expand our product line to sell into additional storage markets, the overall complexity of our business
increases at an accelerated rate and we must make necessary adaptations to our business model to address these
complexities. For example, as we have previously disclosed, we have been investing in technology to develop and support
a product line to sell to mainstream enterprise market customers. In addition to requiring significant capital
expenditures, our entry into the mainstream enterprise market adds complexity to our business that requires us to
effectively adapt our business and management processes to address the unique challenges and different requirements of
the mainstream enterprise market, while maintaining a competitive operating cost model. If we fail or are delayed in our
attempts to enter into the mainstream enterprise storage market, we will remain at a competitive disadvantage to the
companies that serve this market and our ability to continue our growth will be negatively affected.
Expansion into new hard drive markets may cause our capital expenditures to increase, and if we do not successfully expand
into new markets, our business may suffer.
To remain a significant supplier of hard drives, we will need to offer a broad range of hard drive products to our
customers. We currently offer a variety of 3.5-inch or 2.5-inch hard drives for the desktop, mobile, enterprise, CE and
external storage markets. However, demand for hard drives may shift to products in form factors or with interfaces that
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