Western Digital 2010 Annual Report Download - page 30

integrate components from our suppliers effectively, this may adversely affect our ability to develop and deliver the best
products to our customers and our profitability could suffer. For example, in August 2003, we settled litigation with a
supplier who previously was the sole source of read channel devices for our hard drives. As a result of the disputes that
gave rise to the litigation, our profitability was at risk until another supplier’s read channel devices could be designed into
our products. Similar disputes with other strategic component suppliers could adversely affect our operating results.
Violation of applicable laws, including labor or environmental laws, and certain other practices by our suppliers could harm
our business.
We expect our suppliers, sub-suppliers and sub-contractors (collectively referred to as “suppliers”) to operate in
compliance with applicable laws and regulations, including labor and environmental laws, and to otherwise meet our
required supplier standards of conduct. While our internal operating guidelines promote ethical business practices, we do
not control our suppliers or their labor or environmental practices. The violation of labor, environmental or other laws by
any of our suppliers, or divergence of a supplier’s business practices from those generally accepted as ethical in the U.S.,
could harm our business by:
• interrupting or otherwise disrupting the shipment of our product components;
• damaging our reputation;
• forcing us to find alternate component sources;
• reducing demand for our products (for example, through a consumer boycott); or
• exposing us to potential liability for our supplier’s wrongdoings.
Dependence on a limited number of qualified suppliers of components and manufacturing equipment could lead to delays, lost
revenue or increased costs.
Our future operating results may depend substantially on our suppliers’ ability to timely qualify their components
in our programs, and their ability to supply us with these components in sufficient volumes to meet our production
requirements. A number of the components that we use are available from only a single or limited number of qualified
suppliers, and may be used across multiple product lines. In addition, some of the components (or component types) used
in our products are used in other devices, such as mobile telephones and digital cameras. If there is a significant
simultaneous upswing in demand for such a component (or component type) from several high volume industries
resulting in a supply reduction, if a component is otherwise in short supply, or if a supplier fails to qualify or has a quality
issue with a component, we may experience delays or increased costs in obtaining that component. If we are unable to
obtain sufficient quantities of materials used in the manufacture of magnetic components, or other necessary components,
we may experience production delays which could cause us loss of revenue. If a component becomes unavailable, we could
suffer significant loss of revenue.
In addition, certain equipment and consumables we use in our manufacturing or testing processes are available only
from a limited number of suppliers. Some of this equipment and consumables use materials that at times could be in short
supply. If these materials are not available, or are not available in the quantities we require for our manufacturing and
testing processes, our ability to manufacture our products could be impacted, and we could suffer significant loss of
revenue.
Each of the following could also significantly harm our operating results:
• an unwillingness of a supplier to supply such components or equipment to us;
• consolidation of key suppliers;
• failure of a key supplier’s business process;
• a key supplier’s or sub-supplier’s inability to access credit necessary to operate its business; or
• failure of a key supplier to remain in business, to remain an independent merchant supplier, or to adjust to market
conditions.
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