Western Digital 2013 Annual Report Download - page 22

Adverse global economic conditions and credit market uncertainty could harm our business, results of operations and financial
condition.
Adverse global economic conditions and uncertain conditions in the credit market have had, and in the future
could have, a significant adverse effect on our company and on the storage industry as a whole. Some of the risks and
uncertainties we face as a result of these global economic and credit market conditions include the following:
‰Volatile Demand. Negative or uncertain global economic conditions could cause many of our direct and
indirect customers to delay or reduce their purchases of our products and systems containing our products. In
addition, many of our customers rely on credit financing to purchase our products. If negative conditions in the
global credit markets prevent our customers’ access to credit, product orders may decrease, which could result
in lower revenue. Likewise, if our suppliers, sub-suppliers and sub-contractors (collectively referred to as
“suppliers”) face challenges in obtaining credit, in selling their products or otherwise in operating their busi-
nesses, they may be unable to offer the materials we use to manufacture our products. These actions could
result in reductions in our revenue and increased operating costs, which could adversely affect our business,
results of operations and financial condition.
‰Restructuring Activities. If demand for our products slows as a result of deterioration in economic conditions,
we may undertake restructuring activities to realign our cost structure with softening demand. The occurrence
of restructuring activities could result in impairment charges and other expenses, which could adversely impact
our results of operations or financial condition.
‰Credit Volatility and Loss of Receivables. We extend credit and payment terms to some of our customers. In
addition to ongoing credit evaluations of our customers’ financial condition, we traditionally seek to mitigate
our credit risk by purchasing credit insurance on certain of our accounts receivable balances. As a result of the
continued uncertainty and volatility in global economic conditions, however, we may find it increasingly diffi-
cult to be able to insure these accounts receivable. We could suffer significant losses if a customer whose
accounts receivable we have not insured, or have underinsured, fails and is unable to pay us. Additionally,
negative or uncertain global economic conditions increase the risk that if a customer whose accounts receivable
we have insured fails, the financial condition of the insurance carrier for such customer account may have also
deteriorated such that it cannot cover our loss. A significant loss of an accounts receivable that we cannot
recover through credit insurance would have a negative impact on our financial results.
‰Impairment Charges. Negative or uncertain global economic conditions could result in circumstances, such as a
sustained decline in our stock price and market capitalization or a decrease in our forecasted cash flows such
that they are insufficient, indicating that the carrying value of our long-lived assets or goodwill may be
impaired. If we are required to record a significant charge to earnings in our consolidated financial statements
because an impairment of our long-lived assets or goodwill is determined, our results of operations will be
adversely affected.
We participate in a highly competitive industry that is subject to the risk of declining average selling prices (“ASPs”), volatile
gross margins and significant shifts in market share, all of which could adversely affect our operating results.
Demand for our hard drives depends in large part on the demand for systems manufactured by our customers and
on storage upgrades to existing systems. The demand for systems has been volatile in the past and often has had an
exaggerated effect on the demand for hard drives in any given period. As a result, the hard drive market has experi-
enced periods of excess capacity, which can lead to liquidation of excess inventories and more intense price competi-
tion. If more intense price competition occurs, we may be forced to lower prices sooner and more than expected, which
could adversely impact revenue and gross margins. Our ASPs and gross margins also tend to decline when there is a
shift in the mix of product sales, and sales of lower priced products increase relative to those of higher priced products.
In addition, rapid technological changes often reduce the volume and profitability of sales of existing products and
increase the risk of inventory obsolescence. These factors, along with others, may result in significant shifts in market
share among the industry’s major participants, including a substantial decrease in our market share.
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