Western Digital 2013 Annual Report Download - page 34

‰reducing demand for our products (for example, through a consumer boycott); or
‰exposing us to potential liability for our suppliers’ or customers’ wrongdoings.
Failure to continue to pay quarterly cash dividends to our shareholders could cause the market price for our common stock to
decline.
Our payment of quarterly cash dividends will be subject to, among other things, our financial position and results of
operations, available cash and cash flow, capital requirements, and other factors. Any reduction or discontinuance by us of
the payment of quarterly cash dividends could cause the market price of our common stock to decline. Moreover, in the
event our payment of quarterly cash dividends is reduced or discontinued, our failure or inability to resume paying cash
dividends at historical levels could result in a lower market valuation of our common stock.
Fluctuations in currency exchange rates as a result of our international operations may negatively affect our operating results.
Because we manufacture and sell our products abroad, our revenue, margins, operating costs and cash flows are
impacted by fluctuations in foreign currency exchange rates. If the U.S. dollar exhibits sustained weakness against most
foreign currencies, the U.S. dollar equivalents of unhedged manufacturing costs could increase because a significant por-
tion of our production costs are foreign-currency denominated. Conversely, there would not be an offsetting impact to
revenues since revenues are substantially U.S. dollar denominated. Additionally, we negotiate and procure some of our
component requirements in U.S. dollars from non-U.S. based vendors. If the U.S. dollar weakens against other foreign
currencies, some of our component suppliers may increase the price they charge for their components in order to maintain
an equivalent profit margin. If this occurs, it would have a negative impact on our operating results.
Prices for our products are substantially U.S. dollar denominated even when sold to customers that are located
outside the United States. Therefore, as a substantial portion of our sales are from countries outside the United States,
fluctuations in currency exchanges rates, most notably the strengthening of the U.S. dollar against other foreign cur-
rencies, contribute to variations in sales of products in impacted jurisdictions and could adversely impact demand and
revenue growth. In addition, currency variations can adversely affect margins on sales of our products in countries
outside the United States.
We have attempted to manage the impact of foreign currency exchange rate changes by, among other things,
entering into short-term, foreign exchange contracts. However, these contracts do not cover our full exposure and can
be canceled by the counterparty if currency controls are put in place.
Increases in our customers’ credit risk could result in credit losses and an increase in our operating costs.
Some of our OEM customers have adopted a subcontractor model that requires us to contract directly with
companies, such as ODMs, that provide manufacturing and fulfillment services to our OEM customers. Because these
subcontractors are generally not as well capitalized as our direct OEM customers, this subcontractor model exposes us
to increased credit risks. Our agreements with our OEM customers may not permit us to increase our product prices
to alleviate this increased credit risk. Additionally, as we attempt to expand our OEM and distribution channel sales
into emerging economies such as Brazil, Russia, India and China, the customers with the most success in these regions
may have relatively short operating histories, making it more difficult for us to accurately assess the associated credit
risks. Our acquisition of HGST has also resulted in an increase to our customer credit risk given that we service many
of the same customers. Any credit losses we may suffer as a result of these increased risks, or as a result of credit losses
from any significant customer, would increase our operating costs, which may negatively impact our operating results.
Our operating results fluctuate, sometimes significantly, from period to period due to many factors, which may result in a
significant decline in our stock price.
Our quarterly operating results may be subject to significant fluctuations as a result of a number of other factors
including:
‰the timing of orders from and shipment of products to major customers;
‰our product mix;
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