Western Digital 2015 Annual Report Download - page 23

than our cost of goods sold. In addition, rapid technological changes often reduce the volume and profitability of sales of
existing products and increase the risk of inventory obsolescence. These factors, along with others, may result in significant
shifts in market share among the industry’s major participants, including a substantial decrease in our market share.
Our failure to accurately forecast market and customer demand for our products, or to quickly adjust to forecast changes, could
adversely affect our business and financial results or operating efficiencies.
The data storage industry faces difficulties in accurately forecasting market and customer demand for its prod-
ucts. The variety and volume of products we manufacture is based in part on these forecasts. Accurately forecasting
demand has become increasingly difficult for us, our customers and our suppliers in light of the volatility in global
economic conditions and industry consolidation, resulting in less availability of historical market data for certain
product segments. Further, for many of our OEMs utilizing just-in-time inventory, we do not generally require firm
order commitments and instead receive a periodic forecast of requirements, which may prove to be inaccurate. In
addition, because our products are designed to be largely interchangeable with competitors’ products, our demand
forecasts may be impacted significantly by the strategic actions of our competitors. As forecasting demand becomes
more difficult, the risk that our forecasts are not in line with demand increases. If our forecasts exceed actual market
demand, then we could experience periods of product oversupply and price decreases, which could impact our financial
performance. If market demand increases significantly beyond our forecasts or beyond our ability to add manufactur-
ing capacity, then we may not be able to satisfy customer product needs, possibly resulting in a loss of market share if
our competitors are able to meet customer demands.
We experience significant sales seasonality and cyclicality, which could cause our operating results to fluctuate.
Sales of computer systems, storage subsystems, gaming consoles and CE tend to be seasonal and cyclical, and
therefore we expect to continue to experience seasonality and cyclicality in our business as we respond to variations in
our customers’ demand for our products. However, changes in seasonal and cyclical patterns have made it, and could
continue to make it, more difficult for us to forecast demand, especially as a result of the current macroeconomic envi-
ronment. Changes in the product or channel mix of our business can also impact seasonal and cyclical patterns, adding
complexity in forecasting demand. Seasonality and cyclicality also may lead to higher volatility in our stock price. It is
difficult for us to evaluate the degree to which seasonality and cyclicality may affect our stock price or business in
future periods because of the rate and unpredictability of product transitions and new product introductions and
macroeconomic conditions.
Our sales to the CE, cloud computing, network attached storage (NAS), surveillance and enterprise markets, which have
accounted for and may continue accounting for an increasing percentage of our overall revenue, may grow at a slower rate than
current estimates or not at all, which could materially adversely impact our operating results.
The secular growth of digital data has resulted in a more diversified mix of revenue from the CE, cloud comput-
ing, NAS, surveillance and enterprise markets. As sales into these markets have become a more significant portion of
our revenue, events or circumstances that adversely impact demand in these markets, or our inability to address that
demand successfully, could materially adversely impact our operating results. For example, demand in, or our sales to,
these markets may be adversely affected by the following:
‰Mobile Devices. There has been and continues to be a rapid growth in devices that do not contain a hard drive
such as tablet computers and smart phones. As tablet computers and smart phones provide many of the same
capabilities as PCs, they have displaced or materially affected, and we expect will continue to displace or
materially affect, the demand for PCs. If we are not successful in adapting our product offerings to include disk
drives or alternative storage solutions that address these devices, demand for our products in these markets may
decrease and our financial results could be materially adversely affected.
‰Cloud Computing. Consumers traditionally have stored their data on their PC, often supplemented with
personal external storage devices. Most businesses also include similar local storage as a primary or secondary
storage location. This storage is typically provided by HDDs. With cloud computing, applications and data are
hosted, accessed and processed through a third-party provider over a broadband Internet connection, poten-
tially reducing or eliminating the need for, among other things, significant storage inside the accessing com-
puter. Even if we are successful at increasing revenues from sales to cloud computing customers, if we are not
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