Western Digital 2012 Annual Report Download - page 31

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 suc-
cessfully 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 semi-
conductor 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. 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 in California and in Asia. 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 a pandemic influenza, could impair the total volume of hard drives that we are able to
manufacture and/or sell, which would result in substantial harm to our operating results. Similarly, a fire, flood,
earthquake, tsunami or other disaster, condition or event such as political instability, civil unrest or a power outage
that adversely affects any of these facilities, including access to or from these facilities by employees or logistics oper-
ations, would significantly affect our ability to manufacture and/or sell hard drives, which would result in a sub-
stantial loss of sales and revenue and a substantial harm to our operating results. For example, prior to the 2011
flooding in Thailand, all of our internal slider capacity and 60% of our hard drive manufacturing capacity was in
Thailand. As a result of the flooding in Thailand, our facilities were inundated and temporarily shut down. During
that period, our ability to manufacture hard drives was significantly constrained, which adversely affected our busi-
ness, financial condition and results of operations. While we have taken certain steps to diversify our manufacturing
footprint, a significant event that impacts any of our manufacturing sites, or the sites of our customers or suppliers,
could adversely affect our ability to manufacture hard drives, and our business, financial condition and results of oper-
ations could suffer.
Manufacturing and marketing our products globally subjects us to numerous risks.
We are subject to risks associated with our global manufacturing operations and global marketing efforts, includ-
ing:
‰obtaining requisite governmental permits and approvals;
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