Western Digital 2013 Annual Report Download - page 28

Failure by certain suppliers to effectively and efficiently develop and manufacture components, technology or production equipment
for our products may adversely affect our operations.
We rely on suppliers for various component parts that we integrate into our hard drives but do not manufacture
ourselves, such as semiconductors, motors, flex circuits and suspensions. Likewise, we rely on suppliers for certain
technology and equipment necessary for advanced development technology for future products. Some of these compo-
nents, and most of this technology and production equipment, must be specifically designed to be compatible for use
in our products or for developing and manufacturing our future products, and are only available from a limited num-
ber of suppliers, some of whom are our sole-source suppliers. We are therefore dependent on these suppliers to be able
and willing to dedicate adequate engineering resources to develop components that can be successfully integrated into
our products, and technology and production equipment that can be used to develop and manufacture our next-
generation products efficiently. As consolidation in the hard drive supply chain increases, these suppliers may reevalu-
ate their business models. The failure of these suppliers to effectively and efficiently develop and manufacture
components, technology and production equipment for our products, or a decision by these suppliers to exit this
industry, may cause us to be unable to, or experience a delay in our ability to, manufacture and ship hard drive prod-
ucts, expand into new technology and markets, or compete with alternative storage technologies, therefore adversely
affecting our business and financial results. In addition, these suppliers may seek to impose volume guarantees on us
or to shift the burden of certain fixed costs to us in order to continue developing and manufacturing components,
technology or production equipment for our products, each of which may adversely affect our business and financial
results.
Price volatility, shortages of commodity materials or commodity components, or use by other industries of materials and components
used in the storage industry, may negatively impact our operating results.
Increases in the cost for certain commodity materials, commodity components and oil may increase our costs of
manufacturing and transporting hard drives and key components and may result in lower operating margins if we are
unable to pass these increased costs on to our customers. Shortages of commodity components such as DRAM and
NAND flash, or commodity materials such as glass substrates, stainless steel, aluminum, nickel, neodymium, ruthe-
nium, platinum or cerium, may increase our costs and may result in lower operating margins if we are unable to find
ways to mitigate these increased costs. We or our suppliers acquire certain precious metals and rare earth metals like
ruthenium, platinum, neodymium and cerium, which are critical to the manufacture of components in our products
from a number of countries, including the People’s Republic of China. The government of China or any other nation
may impose regulations, quotas or embargoes upon these metals that would restrict the worldwide supply of such
metals or increase their cost, both of which could negatively impact our operating results until alternative suppliers
are sourced. Furthermore, if other high volume industries increase their demand for materials or components used in
our products, our costs may further increase, which could have an adverse effect on our operating margins. In addition,
shortages in other commodity components and materials used in our customers’ products could result in a decrease in
demand for our products, which would negatively impact our operating results.
Contractual commitments with component suppliers may result in us paying increased charges and cash advances for such
components or may cause us to have inadequate or excess component inventory.
To reduce the risk of component shortages, we attempt to provide significant lead times when buying compo-
nents, which may subject us to cancellation charges if we cancel orders as a result of technology transitions or changes
in our component needs. In addition, we may from time to time enter into contractual commitments with component
suppliers in an effort to increase and stabilize the supply of those components and enable us to purchase such compo-
nents at favorable prices. Some of these commitments may require us to buy a substantial number of components from
the supplier or make significant cash advances to the supplier; however, these commitments may not result in a sat-
isfactory increase or stabilization of the supply of such components. Furthermore, as a result of uncertain global eco-
nomic conditions, our ability to forecast our requirements for these components has become increasingly difficult,
therefore increasing the risk that our contractual commitments may not meet our actual supply requirements, which
could cause us to have inadequate or excess component inventory and adversely affect our operating results and
increase our operating costs.
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