Western Digital 2015 Annual Report Download - page 37

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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, especially in situations where there are term extensions under existing contracts with
such customers, 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;
‰changes in the ASPs of our products;
‰manufacturing delays or interruptions;
‰acceptance by customers of competing products in lieu of our products;
‰variations in the cost of and lead times for components for our products;
‰limited availability of components that we obtain from a single or a limited number of suppliers;
‰seasonal and other fluctuations in demand for systems that use storage devices often due to technological
advances; and
‰availability and rates of transportation.
We often ship a high percentage of our total quarterly sales in the third month of the quarter, which makes it
difficult for us to forecast our financial results before the end of the quarter. As a result of the above or other factors,
our forecast of operating results for the quarter may differ materially from our actual financial results. If our results of
operations fail to meet the expectations of analysts or investors, it could cause an immediate and significant decline in
our stock price.
We have made and continue to make a number of estimates and assumptions relating to our consolidated financial reporting, and
actual results may differ significantly from our estimates and assumptions.
We have made and continue to make a number of estimates and assumptions relating to our consolidated finan-
cial reporting. The highly technical nature of our products and the rapidly changing market conditions with which we
deal means that actual results may differ significantly from our estimates and assumptions. These changes have
impacted our financial results in the past and may continue to do so in the future. Key estimates and assumptions for
us include:
‰price protection adjustments and other sales promotions and allowances on products sold to retailers, resellers
and distributors;
‰inventory adjustments for write-down of inventories to lower of cost or market value (net realizable value);
‰testing of goodwill and other long-lived assets for impairment;
‰reserves for doubtful accounts;
‰accruals for product returns;
‰accruals for warranty costs related to product defects;
31