There are certain additional capital expenditure costs and asset utilization risks to our business associated with our strategy to vertically integrate our operations. for Western

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Western Digital (WDC)

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WDC » Topics » There are certain additional capital expenditure costs and asset utilization risks to our business associated with our strategy to vertically integrate our operations.

These excerpts taken from the WDC 10-K filed Aug 20, 2008.

There are certain additional capital expenditure costs and asset utilization risks to our business associated with our strategy to vertically integrate our operations.

Our vertical integration of head and media manufacturing resulted in a fundamental change in our operating structure, as we now manufacture heads and media for use in many of the hard drives we manufacture. Consequently, we make more capital investments than we would if we were not vertically integrated and carry a higher percentage of fixed costs than assumed in our prior financial business model. If the overall level of production decreases for any reason, and we are unable to reduce our fixed costs to match sales, our head or media manufacturing assets may face under-utilization that may impact our operating results. We are therefore subject to additional risks related to overall asset utilization,

including the need to operate at high levels of utilization to drive competitive costs and the need for assured supply of components that we do not manufacture ourselves.

In addition, we may incur additional risks, including:


	•	failure to continue to leverage the integration of our media technology with our head technology;

	•	insufficient third party sources to satisfy our needs if we are unable to manufacture a sufficient supply of heads or media;

	•	third party head or media suppliers may not continue to do business with us or may not do business with us on the same terms and conditions we have previously enjoyed;

	•	claims that our manufacturing of heads or media may infringe certain intellectual property rights of other companies; and

	•	difficulties locating in a timely manner suitable manufacturing equipment for our head or media manufacturing processes and replacement parts for such equipment.

If we do not adequately address the challenges related to our head or media manufacturing operations, our ongoing operations could be disrupted, resulting in a decrease in our revenue or profit margins and negatively impacting our operating results.

There are
certain additional capital expenditure costs and asset
utilization risks to our business associated with our strategy
to vertically integrate our operations.

Our vertical integration of head and media manufacturing
resulted in a fundamental change in our operating structure, as
we now manufacture heads and media for use in many of the hard
drives we manufacture. Consequently, we make more capital
investments than we would if we were not vertically integrated
and carry a higher percentage of fixed costs than assumed in our
prior financial business model. If the overall level of
production decreases for any reason, and we are unable to reduce
our fixed costs to match sales, our head or media manufacturing
assets may face under-utilization that may impact our operating
results. We are therefore subject to additional risks related to
overall asset utilization,

including the need to operate at high levels of utilization to
drive competitive costs and the need for assured supply of
components that we do not manufacture ourselves.

In addition, we may incur additional risks, including:


	•	failure to continue to leverage the integration of our media technology with our head technology;

	•	insufficient third party sources to satisfy our needs if we are unable to manufacture a sufficient supply of heads or media;

	•	third party head or media suppliers may not continue to do business with us or may not do business with us on the same terms and conditions we have previously enjoyed;

	•	claims that our manufacturing of heads or media may infringe certain intellectual property rights of other companies; and

	•	difficulties locating in a timely manner suitable manufacturing equipment for our head or media manufacturing processes and replacement parts for such equipment.

If we do not adequately address the challenges related to our
head or media manufacturing operations, our ongoing operations
could be disrupted, resulting in a decrease in our revenue or
profit margins and negatively impacting our operating results.

This excerpt taken from the WDC 10-K filed Aug 28, 2007.

There are certain additional capital expenditure costs and asset utilization risks to our business associated with our strategy to vertically integrate our operations.

Our vertical integration of head manufacturing resulted in a fundamental change in our operating structure, as we now manufacture heads for use in many of the hard drives we manufacture. Similarly, our planned integration of Komag’s media business into our overall operations will allow us to manufacture media components to work with our heads. Consequently, we make more capital investments than we would if we were not vertically integrated and carry a higher percentage of fixed costs than assumed in our prior financial business model. If the overall level of production decreases for any reason, and we are unable to reduce our fixed costs to match sales, our head or planned media manufacturing assets may face under-utilization that may impact our results of operations. We are therefore subject to additional risks related to overall asset utilization, including the need to operate at high levels of utilization to drive competitive costs, and the need for assured supply of components that we do not manufacture ourselves.

In addition, we may incur additional risks, including:


	•	if we are unable to manufacture a sufficient supply of heads, or media following our planned acquisition of Komag, there may be insufficient third party sources to satisfy our needs;

	•	third party head or media suppliers may not continue to do business with us or may not do business with us on the same terms and conditions we have previously enjoyed;

	•	claims that our manufacturing of heads, or media following our planned acquisition of Komag, may infringe certain intellectual property rights of other companies; and

	•	difficulties locating in a timely manner suitable manufacturing equipment for our head or planned media manufacturing processes and replacement parts for such equipment.

If we do not adequately address the challenges related to our head or planned media manufacturing operations, our ongoing operations could be disrupted, resulting in a decrease in our revenue or profit margins and negatively impacting our operating results.

EXCERPTS ON THIS PAGE:

10-K (2 sections)	Aug 20, 2008

10-K	Aug 28, 2007

Western Digital (WDC)

WDC » Topics » There are certain additional capital expenditure costs and asset utilization risks to our business associated with our strategy to vertically integrate our operations.

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