Western Digital 2011 Annual Report Download - page 28

If we do not properly manage technology transitions and new product development, our competitiveness and operating results
may be negatively 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. If we fail to implement these new technologies
successfully, or if we are slower than our competitors at implementing new technologies, we may not be able to
competitively offer products that our customers desire, which could harm our operating results.
In addition, the success of our new product introductions depends on a number of other factors, including
• difficulties faced in manufacturing ramp;
• implementing at an acceptable cost product features expected by our customers;
• market acceptance/qualification;
• 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.
Our business may suffer if we fail to successfully anticipate and manage these issues associated with our product
development.
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 technology have
successfully served digital entertainment markets for products such as digital cameras, MP3 players, USB flash drives,
mobile phones and tablet devices that cannot be economically serviced using hard drive technology. Advances in
semiconductor technology have resulted in solid-state storage emerging as a technology that is competitive with hard
drives for high performance needs in advanced digital computing markets such as enterprise servers and storage. Solid-
state storage is produced by large semiconductor companies who can then sell their storage products at lower prices while
still remaining profitable overall. This can help them improve their market share at the expense of the competition. In
addition, these semiconductor companies may choose to supply companies like us with semiconductor media at prices
that make it difficult, if not impossible, for us to compete with them on a profitable basis. As a result, there can be no
assurance that we will be successful in anticipating and developing new products for the desktop, mobile, enterprise, CE
and external storage markets in response to solid-state storage, as well as other competing technologies. If our hard drive
technology fails to offer higher capacity, performance and reliability with lower cost-per-gigabyte than solid-state storage
for the desktop, mobile, enterprise, CE and external storage markets, we will be at a competitive disadvantage to
companies using semiconductor technology to serve these markets and our business will suffer.
Our manufacturing operations, and those of certain of our suppliers and customers, are concentrated in large, purpose-built
facilities, which subjects us to substantial risk of damage or loss if operations at any of these facilities are disrupted.
As a result of our cost structure and strategy of vertical integration, we conduct our manufacturing operations at
large, high volume, purpose-built facilities. For example, a substantial majority of our requirement for heads is satisfied
by wafers fabricated in our Fremont, California facility. Also, we manufacture the majority of our substrates for magnetic
media in our Johor, Malaysia facility, and we finish a majority of our magnetic media in our facilities in Penang, Malaysia
and Tuas, Singapore. A majority of our high volume hard drive manufacturing operations are conducted in our two
facilities in Thailand, with the balance conducted in our Kuala Lumpur, Malaysia facility and the facilities of our contract
manufacturers in Asia, Brazil, Europe and the United States. As part of our planned acquisition of HGST, we will also
acquire manufacturing facilities located in Japan, China and the Philippines (as well as additional factories in Singapore,
Thailand and Malaysia). The manufacturing facilities of many of our customers, our suppliers and our customers’
suppliers are also concentrated in certain geographic locations in Asia and elsewhere. A localized health risk affecting our
employees at these facilities or the staff of our or our customers’ other suppliers, such as the spread of the Influenza A
(H1N1) or a new pandemic influenza, could impair the total volume of hard drives that we are able to manufacture and/or
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