Western Digital 2015 Annual Report Download - page 24

successful in manufacturing compelling products to address the cloud computing opportunity, demand for our
products in these other markets may decrease and our financial results could be materially adversely affected.
Demand for cloud computing solutions themselves may be volatile due to differing patterns of technology
adoption and innovation, improved data storage efficiency by cloud computing service providers, and concerns
about data protection by end users.
‰Obsolete Inventory. In some cases, products we manufacture for these markets are uniquely configured for a
single customer’s application, creating a risk of obsolete inventory if anticipated demand is not actually real-
ized. In addition, rapid technological change in our industry increases the risk of inventory obsolescence.
‰Macroeconomic Conditions. Consumer spending has been, and may continue to be, adversely affected in many
regions due to negative macroeconomic conditions and high unemployment levels. Please see the risk factor
entitled “Adverse global economic conditions and credit market uncertainty could harm our business, results of
operations and financial condition.” for more risks and uncertainties relating to macroeconomic conditions.
In addition, demand in these markets also could be negatively impacted by developments in the regulation and
enforcement of digital rights management and the emergence of new technologies, such as data deduplication, com-
pression and storage virtualization. If we are not able to respond appropriately, these factors could lead to our custom-
ers’ storage needs being satisfied at lower prices with lower capacity hard drives or solid-state storage products,
thereby decreasing our revenue or putting us at a disadvantage to competing storage technologies. As a result, even
with increasing aggregate demand for digital storage, if we fail to anticipate or timely respond to these developments
in the demand for storage, our ASPs could decline, which could adversely affect our operating results. Furthermore,
our ability to accurately read and respond to market trends, such as trends relating to the Internet or big data, could
harm our results.
Deterioration in the client compute market (“the PC market”) has accelerated, which could cause our operating results to suffer.
While sales to non-PC markets are becoming a more significant source of revenue, sales to the PC market remain
an important part of our business. The PC market, however, has been, and may continue to be, adversely affected by
the growth of tablet computers, smart phones and similar devices that perform many of the same capabilities as PCs,
the lengthening of product life cycles and macroeconomic conditions. We believe that the deterioration of the PC
market has accelerated recently, and that this accelerated deterioration may continue or further accelerate, which could
cause our operating results to suffer. Additionally, if demand in the PC market is worse than expected as a result of
these or other conditions, demand for our products in the PC market may decrease at a faster rate and our operating
results may be adversely affected.
Selling to the retail market is an important part of our business, and if we fail to maintain and grow our market share or gain
market acceptance of our branded products, our operating results could suffer.
Selling branded products is an important part of our business, and as our branded products revenue increases as a
portion of our overall revenue, our success in the retail market becomes increasingly important to our operating results.
Our success in the retail market depends in large part on our ability to maintain our brand image and corporate reputa-
tion and to expand into and gain market acceptance of our products in multiple channels. We must successfully respond
to the rapid change away from traditional advertising media, marketing and sales methods to the use of Internet media
and advertising, particularly social media, and online sales, or our brand and retail sales could be negatively affected.
Adverse publicity, whether or not justified, or allegations of product or service quality issues, even if false or unfounded,
could tarnish our reputation and cause our customers to choose products offered by our competitors. In addition, the pro-
liferation of new methods of mass communication facilitated by the Internet makes it easier for false or unfounded allega-
tions to adversely affect our brand image and reputation. If customers no longer maintain a preference for WD®,
HGST™ or G-Technology™ brand products, our operating results may be adversely affected.
Sales in the distribution channel are important to our business, and if we fail to respond to demand changes in distribution
markets or if distribution markets for our products weaken, our operating results could suffer.
Our distribution customers typically sell to small computer manufacturers, dealers, systems integrators and other
resellers. We face significant competition in this channel as a result of limited product qualification programs and a
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