Western Digital 2013 Annual Report Download - page 30

‰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 issues associated with our product devel-
opment.
If we fail to develop and introduce new products 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
semiconductor 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 PC and non-PC
storage markets in response to solid-state storage, as well as other competing technologies. If our hard drive technol-
ogy fails to offer higher capacity, performance and reliability with lower cost-per-gigabyte than solid-state storage, we
will be at a competitive disadvantage to companies using semiconductor technology and our business will suffer.
Our manufacturing operations, and those of certain of our suppliers and customers, are concentrated in large, purpose-built
facilities, subjecting 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 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 operations, would sig-
nificantly affect our ability to manufacture or sell hard drives, which would result in a substantial loss of sales and rev-
enue 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, adversely affecting our business, financial condition and results of operations. A sig-
nificant 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 operations 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;
‰currency exchange rate fluctuations or restrictions;
‰political instability and civil unrest;
‰limited transportation availability, delays, and extended time required for shipping, which risks may be com-
pounded in periods of price declines;
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