Western Digital 2013 Annual Report Download - page 23

Our failure to accurately forecast market and customer demand for our products, or to quickly adjust to forecast changes, could
adversely affect our business and financial results or operating efficiencies.
The data storage industry faces difficulties in accurately forecasting market and customer demand for its prod-
ucts. The variety and volume of products we manufacture is based in part on these forecasts. Accurately forecasting
demand has become increasingly difficult for us, our customers and our suppliers in light of the volatility in global
economic conditions and industry consolidation, resulting in less availability of historical market data for certain
product segments. In addition, because hard drives are designed to be largely interchangeable with competitors’ prod-
ucts, our demand forecasts may be impacted significantly by the strategic actions of our competitors. As forecasting
demand becomes more difficult, the risk that our forecasts are not in line with demand increases. If our forecasts
exceed actual market demand, then we could experience periods of product oversupply and price decreases, which
could impact our financial performance. If market demand increases significantly beyond our forecasts or beyond our
ability to add manufacturing capacity, then we may not be able to satisfy customer product needs, possibly resulting
in a loss of market share if our competitors are able to meet customer demands.
We experience significant sales seasonality and cyclicality, which could cause our operating results to fluctuate.
Sales of computer systems, storage subsystems and consumer electronics tend to be seasonal and cyclical, and
therefore we expect to continue to experience seasonality and cyclicality in our business as we respond to variations in
our customers’ demand for hard drives. However, changes in seasonal and cyclical patterns have made it, and could
continue to make it, more difficult for us to forecast demand, especially as a result of the current macroeconomic envi-
ronment. Changes in the product or channel mix of our business can also impact seasonal and cyclical patterns, adding
complexity in forecasting demand. Seasonality and cyclicality also may lead to higher volatility in our stock price. It is
difficult for us to evaluate the degree to which seasonality and cyclicality may affect our stock price or business in
future periods because of the rate and unpredictability of product transitions and new product introductions and
macroeconomic conditions.
Our sales to the non-compute and enterprise markets (collectively, the “non-PC markets”), representing an increasing percentage of
our overall revenue, may not continue to grow at current estimates, which could materially adversely impact our operating results.
The secular growth of digital data is resulting in a more diversified mix of revenue. For example, for the year
ended June 28, 2013, approximately 50% of our net revenue was derived from the non-PC markets. As sales to the
non-PC markets become a more significant portion of our revenue, events or circumstances that adversely impact
demand in these markets, or our ability to address that demand successfully, could materially adversely impact our
operating results. For example, demand in, or our sales to, the non-PC markets may be adversely affected by the
following:
‰Mobile Devices. There has been and continues to be a rapid growth in devices that do not contain a hard drive
such as tablet computers and smart phones. As tablet computers and smart phones provide many of the same
capabilities as PCs, they have displaced or materially affected, and may continue to displace or materially
affect, the demand for PCs. If we are not successful in adapting our product offerings to include disk drives or
alternative storage solutions that address these devices, demand for our products in the non-PC markets may
decrease and our financial results could be materially adversely affected.
‰Cloud Computing. Consumers traditionally have stored their data on their PC, often supplemented with
personal external storage devices. Most businesses also include similar local storage as a primary or secondary
storage location. This storage is typically provided by hard disk drives. Over the last few years, cloud comput-
ing has emerged whereby applications and data are hosted, accessed and processed through a third-party pro-
vider over a broadband Internet connection, potentially reducing or eliminating the need for, among other
things, significant storage inside the accessing computer. If we are not successful in manufacturing compelling
products to address the cloud computing opportunity, demand for our products in the non-PC markets may
decrease and our financial results could be materially adversely affected.
‰Obsolete Inventory. In some cases, products we manufacture for the non-PC markets are uniquely configured for
a single customer’s application, creating a risk of obsolete inventory if anticipated demand is not actually real-
ized.
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