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two years from the closing date of March 8, 2012). In March 2014, we submitted an application to MOFCOM request-
ing that the regulatory restrictions be lifted. At this time, we are awaiting MOFCOM’s response to our application.
For additional information on our acquisition, see Part II, Item 8, Note 15 of the Notes to Consolidated Finan-
cial Statements included in this Annual Report on Form 10-K.
Results of Operations
Fiscal 2014 Overview
In accordance with accounting principles generally accepted in the United States (“U.S. GAAP”), operating
results for Virident, sTec, VeloBit and HGST, which were acquired on October 17, 2013, September 12,
2013, July 9, 2013 and March 8, 2012, respectively, are included in our operating results only after the respective
dates of acquisition.
In 2014, our net revenue decreased by 1% to $15.1 billion on hard drive shipments of 249 million units as
compared to $15.4 billion on shipments of 242 million units in 2013. In 2014, 53% of our net revenue was derived
from our enterprise applications, branded products and CE products, as compared to 50% in 2013. Hard drive average
selling price (“ASP”) decreased to $58 in 2014 from $61 in 2013. Gross profit as a percentage of revenue increased to
28.8% in 2014 from 28.4% in 2013. Operating income increased from $1.3 billion in 2013 to $1.8 billion in 2014.
Operating income in 2014 included $95 million of employee termination, asset impairment and other charges and
$52 million of charges related to an arbitration award as compared to $138 million and $681 million for the same
charges in 2013, respectively. As a percentage of net revenue, operating income was 11.8% in 2014 compared to 8.2%
in 2013. Net income in 2014 was $1.6 billion, or $6.68 per diluted share, compared to $980 million, or $3.98 per
diluted share, in 2013.
For the September quarter, we expect overall hard drive industry shipments to increase from the June quarter’s
138 million units primarily as a result of seasonality. We expect our revenue in the September quarter to increase
slightly as a result of seasonality and an additional week in our first fiscal quarter of 2015 to realign our fiscal quarter
ends.
Summary Comparison of 2014, 2013 and 2012
The following table sets forth, for the periods presented, selected summary information from our consolidated
statements of income by dollars and percentage of net revenue (in millions, except percentages):
Years Ended
June 27, 2014 June 28, 2013 June 29, 2012
Net revenue ............................... $15,130 100.0% $15,351 100.0% $12,478 100.0%
Gross profit ................................ 4,360 28.8 4,363 28.4 3,638 29.2
R&D and SG&A ............................ 2,422 16.0 2,278 14.8 1,573 12.6
Charges related to arbitration award ............. 52 0.3 681 4.4 — —
Employee termination, asset impairment and other
charges ................................. 95 0.6 138 0.9 80 0.6
Charges related to flooding, net ................ — — — — 214 1.7
Operating income ........................... 1,791 11.8 1,266 8.2 1,771 14.2
Other expense, net .......................... (39) (0.3) (44) (0.3) (14) (0.1)
Income before income taxes ................... 1,752 11.6 1,222 8.0 1,757 14.1
Income tax provision ......................... 135 0.9 242 1.6 145 1.2
Net income ................................ 1,617 10.7 980 6.4 1,612 12.9
39