Western Digital 2009 Annual Report Download - page 26

Download and view the complete annual report

Please find page 26 of the 2009 Western Digital annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 104

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104

our competitors offer but which we do not. Expansion into other hard drive markets and resulting increases in
manufacturing capacity requirements may require us to make substantial additional investments in part because our
operations are largely vertically integrated now that we manufacture heads and magnetic media for use in many of the
hard drives we manufacture. If we fail to successfully expand into new hard drive markets with products that we do not
currently offer, we may lose business to our competitors who offer these products.
If we fail to successfully manage our new product development or new market expansion, or if we fail to anticipate the issues
associated with such development or expansion, our business may suffer.
While we continue to develop new products and look to expand into new markets, the success of our new product
introductions depends on a number of factors, including our ability to anticipate and manage a variety of issues associated
with these new products and new markets, such as:
• difficulties faced in manufacturing ramp;
• market acceptance;
• effective management of inventory levels in line with anticipated product demand; and
• quality problems or other defects in the early stages of new product introduction that were not anticipated in the
design of those products.
Further, we need to identify how any of the new markets into which we are expanding may have different
characteristics from the markets in which we currently exist and properly address these differences. These characteristics
may include:
• demand volume requirements;
• demand seasonality;
• product generation development rates;
• customer concentrations;
• warranty expectations and product return policies; and
• cost, performance and compatibility requirements.
Our business may suffer if we fail to successfully anticipate and manage these issues associated with our product
development and market expansion. For example, our branded products are designed to attach to and interoperate with a
wide variety of PC and CE devices, and therefore their functionality relies on the manufacturer of such devices, or the
associated operating systems, enabling the manufacturer’s devices to operate with our branded products. If our branded
products are not compatible with a wide variety of devices, or if device manufacturers design their devices so that our
branded products cannot operate with them, and we cannot quickly and efficiently adapt our branded products to address
these compatibility issues, our business could suffer.
Expanding into new markets exposes our business to different seasonal demand cycles, which in turn could adversely affect our
operating results.
The CE and retail markets have different seasonal pricing and volume demand cycles as compared to the PC market.
By expanding into these markets, we became exposed to seasonal fluctuations that are different from, and in addition to,
those of the PC market. For example, because the primary customer for our branded products are individual consumers,
this market has historically experienced a dramatic increase in demand during the winter holiday season. If we do not
properly adjust our supply to these new demand cycles, we risk having excess inventory during periods of low demand
and insufficient inventory during periods of high demand, which could adversely affect our operating results.
20