Western Digital 2010 Annual Report Download - page 32

• difficulties locating in a timely manner suitable manufacturing equipment for our head or magnetic media
manufacturing processes and replacement parts for such equipment.
If we do not adequately address the challenges related to our head or magnetic media manufacturing operations, our
ongoing operations could be disrupted, resulting in a decrease in our revenue or profit margins and negatively impacting
our operating results.
If we are unable to timely and cost-effectively develop heads and magnetic media with leading technology and overall quality,
our ability to sell our products may be significantly diminished, which could materially and adversely affect our business and
financial results.
Under our business plan, we are developing and manufacturing a substantial portion of the heads and magnetic
media used in the hard drive products we manufacture. Consequently, we are more dependent upon our own development
and execution efforts and less able to take advantage of head and magnetic media technologies developed by other
manufacturers. Technology transition for head and magnetic media designs is critical to increasing our volume
production of heads and magnetic media. There can be no assurance, however, that we will be successful in timely
and cost-effectively developing and manufacturing heads or magnetic media for products using future technologies. We
also may not effectively transition our head or magnetic media design and technology to achieve acceptable manu-
facturing yields using the technologies necessary to satisfy our customers’ product needs, or we may encounter quality
problems with the heads or magnetic media we manufacture. In addition, we may not have access to external sources of
supply without incurring substantial costs which would negatively impact our business and financial results.
Changes in product life cycles could adversely affect our financial results.
If product life cycles lengthen, we may need to develop new technologies or programs to reduce our costs on any
particular product to maintain competitive pricing for that product. If product life cycles shorten, it may result in an
increase in our overall expenses and a decrease in our gross margins, both of which could adversely affect our operating
results. In addition, shortening of product life cycles also makes it more difficult to recover the cost of product
development before the product becomes obsolete. Our failure to recover the cost of product development in the future
could adversely affect our operating results.
If we fail to make the technical innovations necessary to continue to increase areal density, we may fail to remain competitive.
New products in the hard drive market typically require higher areal densities than previous product generations,
posing formidable technical and manufacturing challenges. Higher areal densities require existing head and magnetic
media technology to be improved or new technologies developed to accommodate more data on a single disk. In addition,
our introduction of new products during a technology transition increases the likelihood of unexpected quality concerns.
Our failure to bring high quality new products to market on time and at acceptable costs may put us at a competitive
disadvantage to companies that achieve these results.
We make significant investments in research and development, and unsuccessful investments could materially adversely affect
our business, financial condition and results of operations.
Over the past several years, our business strategy has been to derive a competitive advantage by moving from being a
follower of new technologies to being a leader in the innovation and development of new technologies. This strategy
requires us to make significant investments in research and development. There can be no assurance that these
investments will result in viable technologies or products, or if these investments do result in viable technologies or
products, that they will be profitable or accepted by the market. Significant investments in unsuccessful research and
development efforts could materially adversely affect our business, financial condition and results of operations.
A fundamental change in recording technology could result in significant increases in our operating expenses and could put us
at a competitive disadvantage.
Historically, when the industry experiences a fundamental change in technology, any manufacturer that fails to
successfully and timely adjust its designs and processes to accommodate the new technology fails to remain competitive.
There are some technologies, such as current-perpendicular-to-plane giant magnetoresistance, shingle magnetic
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