Western Digital 2013 Annual Report Download - page 24

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‰Macroeconomic Conditions. Consumer spending in the non-PC markets has been, and may continue to be,
adversely affected in many regions due to negative macroeconomic conditions and high unemployment levels.
Please see the risk factor entitled “Adverse global economic conditions and credit market uncertainty could harm our
business, results of operations and financial condition.” for more risks and uncertainties relating to macroeconomic
conditions.
In addition, demand in the non-PC markets also could be negatively impacted by developments in the regulation
and enforcement of digital rights management, the emergence of processes such as data deduplication and storage
virtualization, and the rate of increase in areal density exceeding the increase in our customers’ demand for storage.
These factors could lead to our customers’ storage needs being satisfied at lower prices with lower capacity hard drives
or solid-state storage products that we do not offer, thereby decreasing our revenue or putting us at a disadvantage to
competing storage technologies. As a result, even with increasing aggregate demand for digital storage, if we fail to
anticipate or timely respond to these developments in the demand for storage, our ASPs could decline, which could
adversely affect our operating results.
Sales in the client compute market (the “PC market”) are important to our business, and if we fail to respond to changes in the
PC market, our operating results could suffer.
While sales to the non-PC market are becoming a more significant source of revenue, sales to the PC market
remain an important part of our business. The PC market, however, has been, and may continue to be, adversely
affected by the growth of tablet computers, smart phones and similar devices that perform many of the same capa-
bilities as PCs, the lengthening of product life cycles and macroeconomic conditions. If demand in the PC market is
worse than expected as a result of these or other conditions, demand for our products in the PC market may decrease
and our operating results may be adversely affected.
Selling to the retail market is an important part of our business, and if we fail to maintain and grow our market share or gain
market acceptance of our branded products, our operating results could suffer.
Selling branded products is an important part of our business, and as our branded products revenue increases as a
portion of our overall revenue, our success in the retail market becomes increasingly important to our operating
results. Our success in the retail market depends in large part on our ability to maintain our brand image and corpo-
rate reputation and to expand into and gain market acceptance of our products in multiple channels, including the e-
tail channel. Adverse publicity, whether or not justified, or allegations of product or service quality issues, even if false
or unfounded, could tarnish our reputation and cause our customers to choose products offered by our competitors. In
addition, the proliferation of new methods of mass communication facilitated by the Internet makes it easier for false
or unfounded allegations to adversely affect our brand image and reputation. If customers no longer maintain a prefer-
ence for WD®, HGST™ or G-Technology™ brand products, our operating results may be adversely affected.
Sales in the distribution channel are important to our business, and if we fail to respond to demand changes in distribution
markets or if distribution markets for hard drives weaken, our operating results could suffer.
Our distribution customers typically sell to small computer manufacturers, dealers, systems integrators and other
resellers. We face significant competition in this channel as a result of limited product qualification programs and a
significant focus on price and availability of product. In addition, the PC market is experiencing a shift to notebook
and other mobile devices and, as a result, more computing devices are being delivered to the market as complete sys-
tems, which could weaken the distribution market. If we fail to respond to changes in demand in the distribution
market, our operating results could suffer. Additionally, if the distribution market weakens as a result of a slowing PC
growth rate, technology transitions or a significant change in consumer buying preference, or if we experience sig-
nificant price declines due to demand changes in the distribution channel, then our operating results would be
adversely affected.
Loss of market share with or by a key customer, or consolidation among our customer base, could harm our operating results.
During the year ended June 28, 2013, 44% of our revenue came from sales to our top 10 customers. These cus-
tomers have a variety of suppliers to choose from and therefore can make substantial demands on us, including
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