Western Digital 2010 Annual Report Download - page 33

recording, energy assisted magnetic recording, patterned magnetic media, advanced signal processing, advanced format
technology and other similar potentially breakthrough technologies, that will represent revolutionary recording
technologies if they can be implemented by a competitor on a commercially viable basis ahead of the industry, which
could put us at a competitive disadvantage. As a result of these technology shifts, we could incur substantial costs in
developing new technologies, such as heads, magnetic media, and tools to remain competitive. If we fail to successfully
implement these new technologies, or if we are significantly slower than our competitors at implementing new
technologies, we may not be able to offer products with capacities that our customers desire. For example, new recording
technology requires changes in the manufacturing process of heads and magnetic media, which may cause longer
production times and reduce the overall availability of magnetic media in the industry. Additionally, the new technology
requires a greater degree of integration between heads and magnetic media which may lengthen our time of development
of hard drives using this technology.
Furthermore, as we attempt to develop and implement new technologies, we may become more dependent on
suppliers to ensure our access to components, technology and production equipment that accommodate the new
technology. For example, advanced wafer and magnetic media manufacturing technologies have historically been
developed for use in the semiconductor industry prior to the hard drive industry. However, successful implementation of
the use of patterned magnetic media with hard drive magnetic media currently presents a significant technical challenge
facing the hard drive industry but not the semiconductor industry. Therefore, our suppliers may not be willing to
dedicate adequate engineering resources to develop manufacturing equipment for patterned magnetic media prior to a
need for the equipment in the semiconductor industry. We believe that if new technologies, such as energy assisted
magnetic recording, are not successfully implemented in the hard drive industry, then alternative storage technologies
like solid-state storage may more rapidly overtake hard drives as the preferred storage solution for higher capacity storage
needs. This result would put us at a competitive disadvantage and negatively impact our operating results.
The difficulty of introducing hard drives with higher levels of areal density and the challenges of reducing other costs may
impact our ability to achieve historical levels of cost reduction.
Storage capacity of the hard drive, as manufactured by us, is determined by the number of disks and each disk’s areal
density. Areal density is a measure of the amount of magnetic bits that can be stored on the recording surface of the disk.
Generally, the higher the areal density, the more information can be stored on a single platter. Historically, we have been
able to achieve a large percentage of cost reduction through increases in areal density. Increases in areal density mean that
the average drive we sell has fewer heads and disks for the same capacity and, therefore, may result in a lower component
cost. However, because increasing areal density has become more difficult in the hard drive industry, such increases may
require increases in component costs, and other opportunities to reduce costs may not continue at historical rates.
Additionally, increases in areal density may require us to make further capital expenditures on items such as new testing
equipment needed as a result of an increased number of GB per platter. Our inability to achieve cost reductions could
adversely affect our operating results.
If we do not properly manage the technology transitions of our products, our competitiveness and operating results may be nega-
tively affected.
The storage markets in which we offer our products continuously undergo technology transitions which we must
anticipate and adapt our products to address in a timely manner. For example, serial interfaces normally go through cycles
in which their maximum speeds double. We must effectively manage the transition of the features of our products to
address these faster interface speeds in a timely manner in order to remain competitive and cost effective. If we fail to
successfully and timely manage the transition to faster interface speeds, we may be at a competitive disadvantage to other
companies that have successfully adapted their products in a timely manner and our operating results may suffer.
If we fail to develop and introduce new hard drives that are competitive against alternative storage technologies, our business
may suffer.
Our success depends in part on our ability to develop and introduce new products in a timely manner in order to
keep pace with competing technologies. Alternative storage technologies like solid-state storage and flash memory
technology have successfully served digital entertainment markets for products such as digital cameras, MP3 players,
USB flash drives and mobile phones that require a relatively low amount of storage capacity that cannot be economically
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